Get Legal, or Get Cheated!
by Chris Malta
When you sell products on the Internet, just like anyplace else, you need to be buying those products from a direct Wholesale Supplier. Either the factory itself, or a factory authorized distributor. If you’re not, you’re paying middleman markups that chip away at your profits until you’re barely making enough to pay your hosting fees. Sometimes I think that there are more middlemen on the Internet than there are ECommerce sites, and they’re all targeting YOU!
Here’s a scenario:
John Doe wants to open an Internet store, and make lots of money. He can’t believe all the news items about new Internet millionaires. He’s seen pictures of these people in the news and on the ‘Net, and lots of them look like they’re one beer short of a six-pack.
“If they can do it, so can I!” he thinks, and starts to search around the ‘Net for information on starting a business. He finds boatloads of hosting companies willing to put his site out there for just a few dollars a month. He finds that many of them offer free shopping carts, so that he can take his customers’ orders. He finds services that let him accept credit card payments without even applying for a merchant account.
Only one thing left…what to sell?
John looks around the Internet for Wholesale Suppliers.
He comes across a wholesaler of name brand products that he knows are very popular. He contacts them, and they say, “Certainly! We will “drop ship” products directly to your customer for you, one at a time, at wholesale. All you need to do is fill out some paperwork about your business, and supply us with your Tax ID number.”
“Paperwork?” thinks John. “Tax ID number?” Yechh! That sounds like work. Worse, it sounds like LEGAL work. That’s a scary thing to most people, and John is one of them!
A little more searching, and John finds a web site called “Stuff R Us”. Stuff R Us is screaming at him: “Thousands of wholesale products you can sell on your website! NO investment for inventory! We send each item right to your customer! No shipping, no handling products, no minimums! Sign up with us and we handle everything! This is your road to Internet Riches!” Well, that’s the road John was looking for, by golly, so he happily sends his name and address to Stuff R Us along with his sign-up fee. Suddenly he can put all kinds of products on his web site, and all he has to do is email his orders to Stuff R Us, and they handle the rest. No paperwork, no hassles.
John is creating a new Internet millionaire, all right. No doubt about it.
Unfortunately, it’s not him. It’s Stuff R Us.
Stuff R Us is a middleman. They sit between John and the REAL Wholesale Supplier. Every time John places an order with Stuff R Us, they turn around and place that same order with the REAL Wholesale Supplier, who sends it to John’s customer. John never knows this is happening.
Stuff R Us is marking up the real wholesale price to John. John will piddle along selling the same over-marketed imports as thousands of other Stuff R Us clients, at over-inflated wholesale prices.
Stuff R Us thinks this is great, and they’re laughing all the way to the bank.
So, where did John go wrong? What did he do to unwittingly get stuck in ECommerce’s biggest trap, the “middleman rut”?
It’s simple. He took the easy way out when searching for a Wholesale Supplier.
Stuff R Us said, “we’ll handle everything”, and John said, “Hmmm, that sounds easy!” So, instead of bothering to do some simple legal paperwork for his business, John let Stuff R Us cheat him out of most of his profit, because it was easy.
Please remember the following two statements:
1. You MUST work with REAL Wholesale Supplier to be truly successful in ECommerce.
2. You cannot buy from a REAL Wholesale Supplier if you are not a LEGAL business.
Let me repeat that last one, for those who may have their Real Jukebox software turned up tooloud:
YOU CANNOT BUY FROM A REAL WHOLESALE SUPPLIER IF YOU ARE NOT A LEGAL BUSINESS!
ANYONE who allows you to purchase wholesale products for resale without legal business paperwork is NOT a real wholesaler, and is taking profit that should be yours.
In our business, we publish two very thorough Directories that help people like John find and contact real Wholesale Suppliers that will work with his Home-based Internet Business. Every once in a while, we get a request for a refund on one of our wholesaler database, OneSource, from someone who says, “I don’t have to go through all this legal stuff to use the Wholesale Suppliers in OneSource. I can just go to Stuff R Us and do it the easy way!”
I have no doubt that Stuff R Us finds this absolutely hilarious.
Getting legal is not that hard. Don’t listen to the people who tell you that you don’t have to do it. Here are the basics (in the US):
File a DBA (Doing Business under an Assumed name), or a Corporation. You can do it yourself for surprisingly little. As far as I know, all states in the US have web sites where you can read instructions and file your papers online. We did it for about $80 here in Florida.
2. If required in your state, file for a local business license. Here, we paid $35 for this. Many states do not even require it.
3. Contact your State IRS office (NOT Federal!) and file for a “Sales and Use Tax ID” or “Resale Certificate.” This is what a real wholesaler needs to see in order to do business with you. They use it to justify the fact that they are not charging you sales tax on the products you purchase and resell to your customers.
Here in Florida, we got this for $5, and it took about 15 minutes.
Getting legal is not hard, and the benefits are tremendous. Don’t make money for a middleman…make it for yourself!