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You want to sell products online and make a profit. This means you must buy your products at the lowest possible price. And the lowest possible price means one thing–buying wholesale. True wholesale.
The Dirty Secret of Most “Wholesale” List Sites
You see, you don’t incorporate yourself — you incorporate your business.
That entity can be a traditional C-corporation, a Limited Liability Company (LLC), or an S-corporation. What’s important is that your business and you are separate.
Before we get to the “how to” part of the question, we need to answer the more fundamental question of “why to incorporate”.
It’s not hard to do a quick Google search for “wholesale”, but most of what you’ll find is junk. These are not true wholesalers where you’ll get the best price. Instead, they are middlemen.
Middlemen purchase from real wholesalers, jack up the price, show you a fake “retail price” (always higher than the true retail price, to make you think you’re getting a deal). You end up paying too much for your product, and quickly find that none of your customers will pay the “retail price” advertised by your middleman/fake wholesaler.
How to Spot a Real Wholesaler
Don’t get too depressed by the above. There are real wholesalers out there. The problem (though you’ll soon see this as an opportunity) is that they aren’t looking for you. Well, let me clarify that. They are not looking for yet another fly-by-night retailer who’s going to order 5 items and never reorder because they can’t sell squat. They aren’t looking for “business partners” too lazy and/or ignorant to have resale tax id numbers and an EIN. They aren’t looking for people who don’t even have a business checking account or business credit card.
In other words, they aren’t looking for 99% of the jokers who are searching for “wholesale” on Google.
Now, they do want to work with real, professional, businesspeople. E-tailers like yourself. These are people who:
- Incorporated and formed a business entity
- Have an EIN for their business
- Have a resale/sales tax ID for their state
- Have a business checking account and/or credit card
In other words, people who treat their business like a business.
Step 1 : Get Incorporated and Form Your LLC
It is theoretically possible to run a business in your own name and not incorporate. Possible, but not recommended.
Getting incorporated and having a business name is a prerequisite for all the other steps. Once you have your LLC named, you can apply for your EIN, get your resale/sales tax ID in your business name, and start talking to real wholesalers.
The key is that you need to be a business. If you are a corporation, you can just call places up and ask for a wholesale list. I was looking to possible start an ecommerce site selling sporting equipment. All I did was call up a wholesaler, tell them my company’s name, and they emailed me a username/password to their online wholesale catalog. It’s really that easy.
No one says it better than Chris Malta, Founder of WorldWideBrands.com, the leading source of true wholesale directories:
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 too loud:
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. ”
His caps, not mine.
Step 2: The Sales Tax ID
Your sales tax ID, also called a reseller’s tax ID, is an absolute must. A true wholesaler simply will not do business with you if you do not supply them with your sales tax ID number.
NOTE: The sales tax ID is different from your Federal EIN (Employer Identification Number). Your EIN is used for paying federal income and employment taxes. The sales tax ID is issued by your state, and is used for tracking sales and use taxes, not income taxes.
Step 3: Your Business Accounts
While not strictly required, its best to have a business checking account and business credit cards. For starters, no wholesaler is going to extend credit to your business unless your business has at least one banking reference. And that means a business checking account.
Having a separate business checking account is important to avoid commingling business and personal funds and thereby having your corporate veil pierced.
One of the reasons for forming an LLC is to protect your personal assets from business debts. This does no good if you mix business and personal money, thereby inviting a court to pierce your LLC’s corporate veil.