Business Structure

ecommerce business structure

In this section, we’ll cover setting up your business. You’ll find details on what equipment you really need to get going (it’s less than you think). We’ll also discuss putting together your team. Even if you’re a one man show you won’t be going it alone. That’s a good thing, as we’ll see.

Setting Up Your Business

Choosing a Legal Structure

The type of company you form has a far reaching effect on how you pay your taxes and what sorts of benefits business ownership can give you. Choose carefully, because it can be difficult and expensive to change, once you are firmly established.

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Work with your accountant on this. It’s OK to start off as a Sole Proprietor for most people, but as soon as you are making enough money to afford it, get an accountant and form an LLC or a Sub S corporation

Sole Proprietor

Sole Proprietors are simply people that are doing for profit work who have not done the paperwork to become an LLC or a corporation. If you’re getting paid to do something, even if you have not filled out a single piece of paper, you are running a Sole Proprietorship.

I don’t recommend that you do this. Legally, there is no separation between you and your business.

With regards to taxes, this means that whatever your business makes is subject to “pass-through” taxation. This means that whatever income (or losses) your business realizes are shown on your personal income tax forms. So you still pay taxes, but without many of the benefits of owning an LLC or Corporation.

The big issue though is liability. As an SP, you are liable for business debts. This means that if your business get sued they can come after your personal assets like your house. So if your business hurts someone, defaults on a debt, or loses a lawsuit, it’s on you.

If you still want to do business as an SP, usually all you have to do is get a business license from your city (or county – these rules are all over the place – check with your accountant) and maybe a seller’s permit from your state

LLC – Limited Liability Corporation

This is a way to get some liability protection without having to go through the trouble of forming a corporation. You also get the pass-through taxation of a sole proprietorship, meaning that your business profits are reported on your personal tax return. This is huge – most of the time your personal tax rate will be less than the corporate tax rate.

If you have partners the LLC should protect you personally from their mistakes and misdeeds. Of course the business assets are at risk, but that goes with the territory. Whether or not you can set up an LLC as a single person depends on the laws of your state or country.

For instance Grabapple Media, LLC is a subsidiary of my main corporation. For the best advice on how you should set up your company always talk to your accountant.

Sub S Corporation

Many of the benefits that used to be the sole domain of the Sub S Corp. can now be achieved with less expense and paperwork via an LLC. Still, you may find that this structure is best for you.

The primary reason that people choose a Sub S is to get liability protection while retaining “Pass-Through” taxation. Your corporation will not pay any taxes. These are instead paid on your personal income tax form, at whatever your personal rate is.

Other reasons that a Sub S might work best for you:

  • You can use losses from your Sub S to offset income from other sources, resulting in a lower tax bill. Hopefully your business makes a profit and this is not your goal.
  • If you sell your business for a profit, you may save on capital gains taxes when compared to a regular corporation.
  • Shareholders can take dividends (owner’s draw) out of the corporation. This means that compared to the money in your paycheck, you can save about 15% that would otherwise go to pay FICA.

How to Choose Your Domain and Business Name

One question that often pops up is whether your business name and your domain name should be the same. Probably not, unless your business name has some inherent advantage in its use as a domain. If you are setting up a site for an existing brick & mortar store, sure.

But if your company is ABC Internet Properties, no. You can put your real business name on your About page if you like, but otherwise your choice of domain should be determined by other considerations. More information on Domain name selection can be found in the Domains and Hosting section of this book.

You may want to register your name for more than one year. Some SEOs believe that Google devalues short term domain names, because they are often used by spammers.

Your team​

Once you start making real money, you’ll need a team. Your team will change over time based on your needs, and the inevitable weeding out process as you find the best people for your business. Here’s what you’ll need:

Bankers

You have to have a business checking account. It makes things so much easier at tax time. But why am I saying that you need two banks?

  • One of them may get eaten by a larger bank that you don’t care to deal with.
  • Or you will find yourself at odds with some of their policies.
  • One of your accounts is hit with a hold, or someone hacks it.
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    We set things up so that Visa & Mastercard deposits go into one account, while Amex & PayPal go into another. That way each account has a stream of cash flowing into it.

    You can start with just one account, but plan to add another once your business is making money steadily.

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    If you will be accepting wire transfers as a payment method, you should set up a separate account for this. Even though the SWIFT code and other information your bank gives you is supposed to allow cash to flow in one direction – into your account – anyone can get hacked

    You should know your banker. There is someone at your local branch handling small business accounts. You need to know that person, make sure they have all your contact info, and ask them to keep you abreast of any new programs or policy changes that may affect your business.

    Call or email them once on a while to chat – have some question ready, or issue to discuss. The point is to build a relationship. If you find in the future that you need a line of credit to expand your business, or buy a large amount of product – you already have someone in your corner.

    A real SEO firm

    I know you may be able to do your own SEO. But it’s a job just keeping up with changes and implementing fixes for them. Once you have multiple ranked sites or even one really good site you’ll start making a lot of money. You’ll have better, more profitable things to do with your time than build links, or worry about what Google thinks of your site this week.

    I use two professional firms and two part timers for my sites in addition to the sad attempts I make on my own.

    An Accountant

    Please don’t waste your time trying to keep up with taxes. Sales tax, use tax, income tax (state & federal) and so on. I pay 100.00 per month for incredible support. Once a month my accountant logs into my PC from his office, makes all the payments, files the paperwork – Done.

    One you start making real money, you’re losing cash doing repetitive work like this. Hire a pro. Get it done fast and done right and forget about it.

    One note: Whoever you use, make sure they know their way around the various government and tax websites. Some older accountants still want to mail actual paper. (Crazy, I know) Make sure they file everything electronically. It’s what the various agencies want, and it saves on printing, postage and time.

    Web Designer / Graphics Guru

    You’ll need one, once you get to the point where you want to put up really gorgeous sites. I know content is supposedly everything – but depending on your market, site design can make a huge difference in your bounce rate. The more consumer oriented a site is, the prettier it has to be. (Again, there may be differences depending on your market)

    Once you are making bank you won’t have time to fiddle around in Photoshop for 30 minutes trying to design a header.

    Remember that you are hiring a designer for her skills and artistic sensibilities. Most designers appreciate thoughtful input, but multiple changes and micro-managing will only make the project take longer, and you may end up with an inferior result.

    The Best Coffee Pot

    How a Web Design Goes Straight to Hell
    A brief pictorial illustrating how not to work with a web designer.

    Supplier Inside Salesperson

    They may be called Sales Manager, Re-seller Leader, whatever. This is the person at your supplier company who is in charge of dealing with the distributors and resellers (that’s you). Even though they work for someone else, they are most definitely part of your team. We cover how to deal with them in depth in the Supplier section of the book.

    Hardware and Software

    Almost everything you think you need is a choice. You can literally run an entire company from a cheap laptop if that is what you want to do.

    Hardware

    Here’s the minimum to run a successful e-commerce company:

    • ​Some kind of computer
    • Free software
    • A broadband internet connection
    • A place to type and drink too much coffee
    • A cell phone

    That’s it! Some of you are thinking: “Hey, I could do all this from Starbucks!”
    Guess what? Some people do.

    Here’s what I use:

    • 2 Desktop PCs
    • Basic Toshiba laptop
    • Scanner,
    • 2 laser printers,
    • UPS and FEDEX sticker printers,
    • a fax machine
    • 2 land lines,
    • a cell phone
    • and a (sometimes) very fast internet connection

    OK – Hardly the minimum. A few points: This was accumulated over years, and it was all paid for with profits. The sticker printers were free. If I really wanted to, I could get rid of the fax and one land line.

    My recommendations for desktop PCs:

    I buy new ones every 4 years or so. I find that it takes about that long for my last “fast PC” to become a boat anchor. When I do buy PCs I buy the fastest thing I can find within reason. Within reason – that means no hand built, liquid cooled Alienware type custom gaming machines. Just the fastest processor I can find in a business machine, and gobs of RAM. I don’t worry about the video card, because I don’t play games on my machines, and I don’t do a lot of video editing.

    What should you use? The absolute minimum. Really. If you’re reading this, you already have a computer of some kind and an internet connection. You can stop there for right now.

    Buy only what you need. Make a rule that you will only buy equipment out of the profits from your business. It's easy to get caught up in “shiny object syndrome” especially with software.

    Software

    And speaking of software, here’s what you need for an e-commerce business:

    • An office suite (word processor, spreadsheet)
    • Image editor
    • .pdf reader
    • Accounting software
    • Firefox or Chrome browsers
    • WordPress software

    That’s all free. Here’s what I use:  (*Denotes free version available)

    *Adobe Acrobat, *Microsoft Office, *Chrome, Firefox & Safari browsers,  *Quickbooks Pro,  *Evernote, *Photoshop Elements, *CCleaner, *Dropbox, StudioPress Themes, Big Commerce, Shopify, Thrive Themes,  Thrive Leads, SumoMe

    Store systems:

    There are a lot of different companies offering storefront software and hosting, even some open-source solutions that are free. These 3 vendors are here because they are the 3 that I use. Some swear by open source code for everything. I use a lot of free software too, but this is one area where I believe it is worth it to spend the money. You need security, support, and the software has to work.

    Yahoo Stores

    A Yahoo store is actually built with rtml instead of html – never heard of it? Don’t sweat it, neither has anyone else except for Yahoo Store developers and customers.

    So anytime you want something different or special done, you have to go to a Yahoo developer. Thankfully, there are a ton of them out there, and rtml can work in conjunction with html and .css to give you whatever look you want.

    They charge a monthly fee and they take a percentage (.5% to 1.5% depending on the package purchased) of every sale that goes through the shopping cart. This can add up, but most Yahoo customers feel that it is a small price to pay for the feature set and support they give. For us it’s a no-brainer, because most of our B2B orders come via phone, email or fax, so they are not subject to the fees.

    Whether or not this is worth it depends on your business, and how much you want to do. Yahoo will walk you through everything from choosing your domain name to putting up your store.

    One of the best things about Yahoo Stores for us is that we can use one login and access three of our stores. This is a huge timesaver when it comes to processing orders.

    Yahoo Store System

    Big Commerce

    Once your business outgrows a WordPress site, this is where you want to be. The price is low, the feature set is unbelievable, and it just keeps getting better and better.

    The feature set is pretty much endless. They give you literally everything you need to set up your website, market your products and send them out. If you are sure enough of success to drop some cash, and spend time learning their system, this is THE hosted store platform right now.

    There are only a couple of downsides:

    · It’s not free, so if you are just testing out your marketplace, you may want to use a free option to make sure you have enough demand.

    · As of this writing, you have to do some gymnastics to integrate a blog with Big Commerce. I’m not talking about a blog on a sub-domain, that’s pretty straightforward. I mean a blog that is integrated into the store, so posts appear with the store, not on a separate site. As a substitute, the web page functionality can give you some of the functions of a blog, including an RSS feed.

    Since this book was written, we have moved all but one of our stores to Shopify. See our new video course for a detailed look at Shopify.



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