Get Legal, or Get Cheated!

By Chris Malta
Posted Monday, December 13, 2004

Are you an Ecommerce business owner, or do you just seem to be one? There is a difference, and that difference will hurt your business.

When you sell products on the Internet, just like anyplace else, you need to be buying those products from a direct wholesale source. 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 product distributors. 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 wholesaler. Every time John places an order with Stuff R Us, they turn around and place that same order with the REAL wholesaler, 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 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 suppliers 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 DISTRIBUTOR 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 a very thorough directory that helps people like John find and contact real wholesalers that will drop ship products to his customers. Every once in a while, we get a request for a refund on our directory from someone who says, “I don’t have to go through all this legal stuff to use the distributors in your Directory. 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):

1.) 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 print the forms. We did it for $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!

Chris Malta
WorldWide Brands, Inc.
For more information, visit (http://www.YouCanDropship.com)

About the Author
Chris Malta is a Microsoft Certified Systems Engineer. He has worked with computer Systems for 18 years. He's been involved in eCommerce systems, networking and site design for more than 6 years. He's taught college-level computer courses in Western NY. He developed The Drop Ship Source Directory, and he and his partners at Worldwide Brands, Inc., publish the Directory and run eCommerce sites of their own using Drop Shipping as their only business method.