Formal Report
HOW TO START AN ONLINE BUSINESS:
A Recommendation Report
INTRODUCTION Starting an online business can be a rewarding experience that provides you with flexibility and extra income for your family. The process of starting an online business can be extensive but is not difficult if you follow the correct process. Background/Problem Recently when I spoke with you, you mentioned that your husband was laid off from his job. You wanted to find a way to help your family financially, while staying at home with your children. You purchased a machine that cuts vinyl decals and you want to make custom clothing and home decor to sell online. Multiple websites, like Etsy and PayPal, collaborate together so that individuals, like yourself, can sell their products and receive payment online. However, some of these sites are difficult to navigate and contain an abundance of information. You previously mentioned reading articles online that explained the process of using these sites, but they didn’t provide detailed instructions on the additional steps to be taken to legally run a successful business. You mentioned that you wanted to ensure you were taking the correct steps to legally start a business so that you are not penalized later. Establishing a business incorrectly can be very costly to you as the new business owner, and can ruin your reputation in the online market if not done correctly. Goal/Scope My goal for this report is to not only help you start a successful business online, but to help you achieve that goal legally and with ease so that you can start your business with your best foot forward. In this report, the following will be addressed:
• Basics of Starting a Business
• Legal Requirements to Start a Business
• Business Finances
• Going Live Online
• Promoting Your New Business
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Sources When you approached me about starting your own business, I was more than willing to help since I had recently started my own business. Unlike your business, I sell my items locally through a store front and on social media, so I was unfamiliar with using a website, like EBay or Etsy, to sell items. I knew I needed to do some additional research to guide you in the right direction. Since this report is about starting an online business, a majority of my sources are from the internet. In order to achieve my goal with this report and make sure you receive the information you need to be successful in this venture, I needed to interview you to get more information. In this interview, we discussed the basic information about your business, the amount you wanted to invest to get started, your knowledge of using technology and selling items online, and the general concerns you have about starting a business. We also discussed possible names for your new business. With this information, I was able to do some additional research to find the best site to sell your items, and make an outline of the topics that we needed to cover to begin this process. In addition to interviewing you, an interview was conducted with an online business owner, Kelly Dove. Ms. Dove has owned her own business on EBay for over 10 years, and has a lot of experience selling vintage and antique items online. Her experience owning an online business provides accurate and reliable information regarding your new venture. The last interview was conducted with Lindsey Parker, an accounts manager at a local bank. She provided detailed information about setting up a separate checking account for your new business. Mrs. Parker has been employed in the banking industry for 20 years and has extensive knowledge working with business owners and new accounts. Following the recommendation from Ms. Dove, research was conducted on the direct selling website Etsy. Etsy is specifically for individuals who want to sell their homemade items and crafts online. Their website provides detailed information about selling items online and the process of using their online store. They are used by millions of buyers and sellers all over the world, making them a very trustworthy source for selling items. PayPal is used in conjunction with Etsy to accept payments from buyers and transfer money to your checking account. Their website is the best resource to provide detailed information regarding fees for sending and receiving payments, security for sellers, and all of the benefits that come with having an account with PayPal. To address the legal concerns with starting a business, an article was found online with the state of Texas that answered questions about starting an online business and the process to sell items. It also contained additional information about obtaining a tax permit, calculating sales tax, registering a business name with the Secretary of State, and the forms needed to obtain each of these legal documents.
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Advertising can be a costly expense for a new business, so finding ways online to advertise for free is important. Researching social media sites, like Facebook, provided accurate information on how to set up an account and establish a business page to build a customer base. FACTS AND DISCUSSION In this section, starting an online business is discussed in detail.
Basics of Starting a Business The basics of starting an online business include identifying your product, naming your business, and choosing a site to sell your items.
Identifying your Product The first step in starting a business is deciding what services or items you will market to your customers. In your interview, you mentioned that you would like to use a machine that you purchased recently to make vinyl decals for clothing and home decor items. You have already completed this step and elected what items you will sell to earn money for your business. Naming your business The most stressful and fun step when starting a business is deciding what your business name will be. In order to be remembered and build your customer base, you need something catchy and unique. Write down a list of names that mean something to you, or maybe a list of words that pertain to your business. For example, cut, vinyl, custom designs, etc. Friends and family can be helpful as well. Sometimes getting an outside perspective allows you to think of names you may not have thought of before. Choosing a name that means something to you emotionally attaches you to your business and allows you to begin this adventure with confidence. Choosing a Site to Sell your Items After speaking with Kelly Dove and researching multiple sites, Etsy would be the best site for you to use to sell your items. Etsy is designed specifically for selling homemade, unique items that individuals cannot find anywhere else. Etsy currently has 1.5 million sellers and 21.7 million buyers from nearly every country in the world (“Take Your Shop”). This site will allow you access to millions of buyers, the ability to take custom orders for items, and allows you to grow your business on your own terms (“Take Your Shop”). Etsy is a web-based, user friendly website that offers excellent customer support, encouraging sellers to contact them if they have any questions or concerns. Legal Requirements to Start a Business The following discusses the steps in making sure your business is legal.
Registering Your Business Name The first step to ensure your business is operating legally is to register your business name with the state of Texas. You will be listed as a sole proprietor, which is the most common and simplest form of business. In a sole proprietorship, a single individual engages in a business
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activity without necessity of form organization. If the business is conducted under an assumed name (a name other than the surname of the individual), then an assumed name certificate (also known as a DBA) should be filed with the county clerk in the county where the business premise is maintained (“Name Filing FAQs”). Since you will have a business name, other than your surname, you will need to request an assumed name certificate. Form 503 needs to be completed and sent to Austin via fax or mail, along with payment for the filing (“Name Filing FAQs). This form includes instructions on how to be completed and provides information on how to send to the appropriate office to be filed. This form can be found on the Secretary of State website listed in the sources found at the end of this report. Please see an example of page 1 of Form 503 below in Figure 1.
Requesting a Sales Tax Permit Now that we have registered your new business name, the next step is to request a sales tax permit, or a tax id. The state of Texas has a user-friendly website that gives detailed instructions on who needs a sales tax permit and how it can be requested. Internet and catalog sellers engaged in business in Texas must be permitted and are responsible for collecting and remitting the applicable state and local taxes on sales delivered to customers in Texas (Hegar). This confirms that to legally operate an online business, a sales tax permit is needed. Form AP-201 will need to be completed online, and can be mailed or faxed to the comptroller’s office (Hegar). The comptroller’s website also has some very helpful links about collecting sales tax and starting a new business. They offer seminars for new taxpayers and encourage them to attend these overviews of tax responsibilities for buyers, sellers, and service providers (“Sales Tax and Your New Business”). Please see an example of Form AP-201 in Figure 2 below.
Business Finances Now that we have our legal requirements completed, we can begin discussing the financial aspects of owning a business online. Setting Up a Business Checking Account The next step in this process is to set up a checking account for your business. Some sole proprietors like to use their personal checking account when they’re just starting their business but it’s a good idea to have a separate account to keep all business and personal finances separate. I interviewed an accounts manager, Lindsey Parker, at a local bank and she advised you, as the business owner, to go to your bank and speak with a new accounts representative to start the process of opening a business account. You will need to bring your tax permit, as well as your business certificate. The accounts rep will walk you through completing the appropriate forms and can answer any questions you have in regards to your new checking account.
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Fees Regarding Selling Online With any business, overhead expenses are incurred. Since you are working from home, your expenses will not be as significant as others. The main expense, other than supplies for items, will be the fees charged to you to use Etsy and PayPal. We will first break down the fees related to Etsy. Etsy does not charge a membership fee, but they do charge a fee for each item listed and sold. It costs $0.20 to list an item for 4 months, or until it sells. Once the item is sold, Etsy collects a 3.5% fee on the sales price (“Fees & Payment Policy”). These fees will need to be considered when pricing your items to sell. You want to make sure that you are still making a profit after fees, supplies, and labor. Fees for listings and transactions are accrued on your monthly Etsy bill and at the end of the month, all fees are added and a statement is emailed to you. The bill must be paid by the 15th of the next month using either a credit card on file or by using your PayPal account (“Fees & Payment Policy”). You will also need to take into consideration the fees for processing credit cards. All credit card companies charge sellers a fee to use their services. Etsy does have a credit card processing fee of 2.75% per swipe. You may request a credit card reader, download the app for your smartphone, and process cash payments at no cost (“Take Your Shop”). After setting up an account on Etsy, an account on PayPal will need to be created. Etsy takes payments for items in the form of PayPal as well as credit cards. PayPal does not charge a fee for buyers to use their site, however, the seller has to pay 2.9% + $0.30 per transaction (“PayPal Fees”). These fees do not accrue until an item has sold. Once money is deposited into your PayPal account from a transaction, it can be transferred to your business checking account. As long as you are sending the money to a bank located within the US, a fee is not charged for this service. As well as fees for selling online, fees for taxes also need to be considered. This subject can be a little confusing but many resources online provide information regarding this process. The IRS requests that taxes be paid 4 times a year, or quarterly (Messerschmitt, “Wrapping Your Head”). Sales tax is currently 6.25% in the state of Texas and sellers cannot collect more than 2% for local tax on any one transaction (Hegar). Luckily you can set up this function in Etsy, and they will calculate the sales tax for you. They also have a feature that allows you to download a spreadsheet of your sales records to help keep track of your taxes. You may also receive a 1099K form as well from Etsy (Messerschmitt, “How to Determine”). Your quarterly taxes can be paid online or through the mail. Please see an example of the 1099K Form below in Figure 3.
Going Live Online
Now that all of the basics and background information have been discussed, it’s time to set up your accounts online to start selling your items.
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Creating an Etsy Account Setting up an account on Etsy is fairly simple and their site walks you through every step. They have a great website with a seller’s handbook, and lots of articles and discussion boards on anything related to selling on their site. Your first step will be to go to Etsy.com to register. Here they will ask you some basic information and then you will get started on stocking your shop. You will then go into account settings and add a debit/credit card for fees. I suggest using your new business checking account, and also link your PayPal account there as well (“Fees & Payment Policy”). Many buyers online tend to only use their PayPal account to make purchases because they offer great buyer protection, so it is a good idea to accept this form of payment on Etsy, as well as all major credit cards. Setting up a PayPal Account Setting up a PayPal account is a little more complicated but still a fairly simple task. You have the option to set up a personal account or a business account. You will want to select the business account because this allows you to accept major credit cards and send secure invoices to your customers (“PayPal Fees”). A more advanced membership is available for you to select for $30 a month but right now the standard plan for your business will be sufficient. You will need to input some basic information and then select how you will accept payments. It is very user-friendly and walks you through the process step-by-step, offering helpful tips along the way. You can set up your new bank account here as well. You will then need to confirm your checking account after a small deposit is made, and then you can begin accepting payments and transferring money. Promoting Your New Business
Now that you have everything set up to start selling online, you can begin promoting your new business. Marketing and advertising can be a costly expense for a new business but many advertising options are available at no cost to you. Friends and Family The best advertising you can receive is from your family and friends. They will represent you better than anyone. Suggest making things for them to showcase at work, at home, and to wear to advertise your business. When individuals ask about the item, they can direct them to your Etsy store. Word of mouth is free and can be great for your business, as long as you keep your customers happy. These items for advertising that are given to friends and family can be included on your taxes as a business expense. Social Media Social media is the trend right now and many of these sites offer advertising for businesses at no cost. Facebook allows individuals to create pages to promote their business. On your business page you can upload pictures, sell on Facebook, and link your Etsy shop to your business page (“Facebook Page Terms”). Friends and family can share your page as well on their Facebook to promote your business further. Facebook does not charge a fee for setting up a business page. However, you can purchase advertising space for your business at any amount
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you choose to spend. You load a certain amount to your Facebook account and then you are able to advertise as much as that amount will allow. As well as Facebook, Instagram and Pinterest also allow you to advertise your business at no charge. All you need to do is set up an account, upload a few pictures, and start getting your products and name out there. Social media is the trend for growing businesses and it’s free, which makes it even better for a new business owner just starting out. CONCLUSION
In conclusion, the process of starting an online business is tedious but it is worth it if you do it correctly and follow the above steps. Setting up your business correctly in the beginning will only save you time and money in the long run. Starting out on a good note will only ensure your future success with your new business. The following steps are recommendations but are the best sites and process to meet your needs. You cannot go wrong with Etsy or PayPal. They both offer protection for not only the buyer but also you as the seller, they are known by millions, and they’re very secure and trustworthy sites. They would not be as successful as they are if they were not conducting business in the right way. Since you are very familiar with technology and web-based programs, you will have no problems following this process and starting your business. Not only will this business allow you to grow personally but you will be able to remain at home with your children and contribute financially to your family.
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Works Cited
Bajwa, Hissan. "Law 101: A Guide to Setting up Your Business." Etsy. N.p., 26 Mar. 2013. Web. Bero, Corinne. Personal interview. 23 Sept. 2015. Dove, Kelly. Telephone interview. 23 Sept. 2015. "Facebook Page Terms." Facebook. N.p., 16 Jan. 2015. Web. Hegar, Glenn. "Internet Orders-Buying and Selling." Texas Comptroller of Public Accounts. State of Texas, Feb. 2006. Web. Messerschmitt, Laura. "How to Determine Your Sales Tax." Etsy. N.p., 3 Oct. 2012. Web. Messerschmitt, Laura. "Wrapping Your Head Around Quarterly Estimated Taxes." Etsy. N.p., 12 Sept. 2012. Web. "Name Filings FAQs." Texas Secretary of State. State of Texas, n.d. Web. Parker, Lindsey. Telephone interview. 25 Sept. 2015. "PayPal Fees - For Purchases, Getting Paid and Merchant Fees - PayPal." PayPal. N.p., n.d. Web. "Sales Tax and Your New Business." Texas Comptroller of Public Accounts. State of Texas, n.d. Web. "Selecting a Business Structure." Texas Secretary of State. State of Texas, n.d. Web. "Take Your Shop to New Places." Etsy. N.p., n.d. Web. "Texas Online Tax Registration Application." Texas Comptroller of Public Accounts. State of Texas, n.d. Web.