Starting an ecommerce business is one of the most difficult small-business ideas to implement. Make it easier by avoiding some of these mistakes.
Not Picking the Right Starting Product
According to the Small Business Administration (SBA), 57% of business owners use their personal savings as the top source of startup capital when starting an ecommerce business. Without major outside financing, ecommerce business owners need to be extra careful when picking products to sell. Since you usually don’t have a big advertising budget, it can be difficult to expand your customer base. In plain language, it’s possible you won’t be able to make a lot of sales right at the beginning. That’s why it’s necessary to have a decent profit margin per product. This will enable you to sustain your business.
Don’t set up your business before you talk to an accountant or you could end up paying too much in taxes. Schedule a no-obligation consultation with an expert from 1-800Accountant.
Political risks driven by trade wars are another factor to consider. Keep an eye on the list of products affected by extra tariffs, and adjust your product portfolio accordingly.
Not Picking the Right Ecommerce Platform
Blindly choosing a platform is another mistake that most people make when staring an ecommerce business. Well-established platforms might have most of the online traffic. However, the existence of multiple sellers for one product or alternative products creates fierce competition among online sellers.
Not Tracking Your Business Inventory
You need to keep track of your inventory. This will help your tax accountant report the accurate cost of goods sold (COGS) number. You can use this as a deduction on your business tax return. That means, you need to have an accurate record every time you purchase new products. You also need to do an inventory count at the end of every single tax year. This will let you know how much of the inventory remains unsold. With the help of services like Fulfillment by Amazon (FBA), the burden of inventory control can be taken off your shoulders. However, Amazon Seller Central is also not the easiest platform to navigate. Make sure to investigate any inventory control system before diving in.
Not Reporting Your Ecommerce Sales Tax
You need to report and file sales tax returns. As long as you are selling taxable tangible products, you will be liable for sales tax at least in your home state unless you are located in one of the five states where there are no statewide sales and use taxes: Alaska, Delaware, Montana, New Hampshire and Oregon. After the US Supreme Court ruled in favor of the state in South Dakota v. Wayfair, Inc. case, states have been updating their sales tax ruling so that as long as your business have enough economic connection with the state, you are required to pay and file sales tax even if you don’t have any physical presence in that state.
Economic connections are usually defined in terms of the number of transactions or the total amount of sales made in one state. As your business grows, you will most likely have to worry about filing sales tax return in multiple states. If your filing frequency is monthly, then that basically means multiple state sales tax returns per month. In order to file the returns, you will need to have sales data per state. If you aren’t ready to keep track of those details on your own, hiring a tax professional could help alleviate some stress.
