- The Definitive Guide to Starting an Online Business
- How to Find Online Business Ideas and Source Products to Sell
- The Paperwork: How to Make a Business Plan and Register as an E-commerce Company
- How to Set Up a Website for E-commerce
- How to Set Up Online Payment Methods to Accept That First Purchase
- Pick Packaging That Saves You Money
- How to Ship Products for an Online Business
- Successful Marketing Strategies for Small Businesses
- Small Business Customer Service Strategies Explained
- How to Handle Customer Returns
- Fulfilling Orders at Scale with a 3PL or Management Software
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About the Handbook
We’re diving deep into every facet of creating an online business to make it easy for you to get started and scale quickly. Hear from top e-commerce SaaS providers and online retailers for the best advice to achieving success — from choosing a product and building a website to creating shipping labels and processing returns.
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Even if you have the best business idea in the world, you won’t be taken seriously until you put it to paper. After your product is validated and in production, you should start the necessary planning for new businesses. Some items are required by the state in order to operate, like the paperwork needed to register a business. It’s just as important to know how to make a business plan, since it’s critical to finding success.
Business Plan and Registration Checklist
Here’s a checklist of the paperwork, plans, and information you’ll need to start your business on the right foot.
Now we’ll dive into the specifics.
We’ll start with the fun stuff, since your company name is usually required on just about any plan or paperwork. Ideally, your company name will be memorable and clearly represent what you do—even better if you can snag a corresponding domain name in a .com format. For an e-commerce company, your business name and domain name should be as indistinguishable as possible. (Note that it’s harder to get your domain name of choice nowadays since so many of them have been bought up.)
To get started, there are plenty of brainstorming tools you can use to create possibilities, including Shopify Business Name Generator.
Even if you don’t build your website right away, you’ll want to select and purchase your business domain before finalizing your company name. If you know what e-commerce platform you’re going to use for your site, most of them have a domain search function. You can also look up available ones at NameCheap.com and Name.com.
When brainstorming ideas for your business and domain names, feel free to be creative, but avoid confusing, hard-to-remember ones. Skip anything with an odd spelling (using a “k,” for example, where a “c” would normally be used). And avoid overusing hyphens (if you have to use a hyphen to get your domain of choice, stick to just one).
What’s in a Name: Bean Box
Based in Seattle—arguably the coffee capital of the U.S.—Bean Box is a coffee subscription and gifting company. They started their business using the .co domain. Recognizing the value of the .com, and after proving out their product/market fit for three years, founder Matthew Berk and his team paid the hefty price tag that came with purchasing and then shifting to beanbox.com.
What’s in a Name: Mail Order Mystery
Just like the company name implies, Mail Order Mystery delivers a mystery story experience for kids that comes through the mail. Customers know what they’re getting and can easily remember a domain name that’s a direct match of the company name: mailordermystery.com.
Lean towards the .com extension for your domain because people tend to associate that with established businesses and they typically type in that extension in search bars. Other extensions, such as .net, .biz, dev., .org, and so forth can be used, but they aren’t as desirable. Avoid second-tier types of extensions, such as .mobi, .info, and so on.
It’s possible that someone bought a domain name but isn’t using it—and may therefore be willing to sell it to you. You can find information about a domain name’s owner through “Whois” tools. Here’s the GoDaddy version of this tool. If time is on your side and there’s an unused domain name that you have your heart set on, you can use domain monitoring tools to see if your preferred choice becomes available.
Bottom line: You want to make it super easy for people to get to your website. Of course, there are edge cases that fly in the face of this advice. Google.com, for example, wasn’t something that people would have initially connected with a search engine. However, it’s usually most effective to keep the meaning of your business name —and its associated domain name— intuitively easy to understand. Alternatively, avoid being so specific that, if you expand your product lines, it no longer makes sense.
Also consider search engine optimization implications. These are especially important for online businesses because your traffic won’t come through your physical front doors as they do with a brick and mortar. Rather, traffic often arrives when people either specifically type in your domain name or do a keyword search in a search engine. Being SEO-savvy with your domain choice and including a strategic keyword can help you to capture a larger share of searches where the intent is to find and buy the kinds of products you sell.
In past years, many companies went too far in jam-packing their domain names with keywords—and now, more than ever, this strategy can backfire, with Google looking askance at this attempt to game the search system. We look to Moz.com, an expert in this subject, for guidance. They suggest that, when possible, “include a keyword that helps make it obvious what your business does while keeping your domain name catchy, unique, and brand-friendly.”
Examples of what to avoid: “best-pancake-pans-for-pancakes.com and senior-eldercare-retirement-home-finder.com”. Silly as those examples may sound, when Google was using domain names as a more significant ranking factor, those are exactly the ones used by certain companies.
Here’s a pro tip. Consider adding a verb to your domain name (for example, GoShippo.com!). This can help to encourage people to act.
Once you have a short list of names for your company that you like, ones where a desired domain is available, get feedback from trusted colleagues and potential customers. What kind of reactions are you getting? Can it be confused with anything that has a negative connotation? When you say the name out loud, does it resemble anything with an unwanted meaning?
Google those company names. Is anyone else using them? Even more important, are they trademarked by someone else? Check Secretary of State records in your state because, if the name you’re considering is too similar to an already existing one, it’s possible that you won’t be allowed to register it.
After you purchase a domain name, you may want to also purchase the same domain with other extensions. This will help to prevent the confusion that can occur if someone buys those domain names and sets up a competing e-commerce business. You might also want to buy domains that are very similar to the one you’ll use, again to avoid potential confusion and to protect your business.
A business plan serves as the foundation of your new online business in two distinct but equally important ways: as an internal document that will guide you in forming and running your business and as an external document as you solicit feedback from respected colleagues and potential business partners, seek funding, and more.
You may hear a business plan referred to as a business guide, roadmap, or blueprint—and, if one of those terms resonate with you, then that’s the term to keep front of mind.
Although some people may debate the value of creating a business plan, a Palo Alto Software survey of nearly 3,000 businesses shows how doing so can just about double your chances of growing your business. The study authors note that, outside of a few outliers, “business planning appeared to be positively correlated with business success.”
As you begin to create your business plan, the early stages of this process can be a mixture of brainstorming ideas and researching facts. It can help to focus on writing a draft that can then be tweaked, rather than trying to create a perfect plan from the start; the second strategy—aiming for perfection right out of the gate—can often result in endlessly staring at a blank screen.
Questions to answer as you develop your plan include:
- What is the overall purpose of my company?
- What is my mission statement? Vision statement?
- What, if any, social service components will exist?
- What products will I sell?
- How will I source my products?
- Will manufacturing be involved?
- Who is my target customer?
- Will I be serving a more general audience or a niche one?
- Will my business be B2B (business to business) or B2C (business to consumer)?
Creating personas—composite sketches of each segment of your target audience—can significantly help you to have a clear understanding of your buyers, which in turn will help you to provide what they need and market to them. In fact, an ITSMA study shows that 90 percent of companies that create personas have a better understanding of their buyers.
Elements of the Business Plan
A business plan starts with an executive summary, which is a one-page summary of the key points of your plan. This is a crucial part of your business blueprint, one that potential funders and partners will likely review to see if they want to delve into your entire document and possibly collaborate with you. Tip of the day: Write this summary last so you can pull out the most important points from each of the subsequent sections of the business plan.
Next up is an in-depth company overview. This is where you can strategically share your business’s goals, mission statement, and vision statement, along with your business structure (more about that later in this chapter), and biographies of key company personnel that include their relevant knowledge, experience, and connections. Although you’ll provide a high-level look at your products and services here, save the more detailed information for a later plan section.
The next section can often be one of the most time-consuming to put together: the market/competitive analysis. Hopefully, you’ve already done some of the heavy lifting for this section when you researched market fit for your product.
List your target markets and estimate the number of people in each of them who may buy your product. For example, if you plan to sell a product that will help people who have diabetes, list the numbers of people in your target geographies who have that condition. Regardless of what you will sell, be careful not to overestimate your potential audiences and avoid saying that everyone will want your product. As the hoary old saying goes, when you create something for everybody, you’ve really created it for nobody.
What kind of market share can you realistically expect? If you have a niche product, how can your product supplement what’s currently available? What barriers to entry exist? How significant are these barriers?
List your competitors by product line, and share how your product is different from or better than their offerings in key ways or otherwise describe where you see your company fitting into the industry landscape. There is a model, known as Porter’s Five Forces and developed by Harvard Business School, that can help you to gather information and create this section of your business plan.
Now explain your products and services in more detail. You’ll want to include features as well as benefits. Features are descriptive and share what you sell, i.e., six-inch blue widgets, round shaped. Benefits, meanwhile, share how that product will fulfill a need for your customers and improve their lives. While features are the “what” of it all, benefits are the “why.”
Start to think about your marketing plan. How will you share the news about your product to prospects? We’ll cover e-commerce marketing in greater detail in a later chapter. In the meantime, consider outlining information about your website, your plans for organic search engine optimization (SEO), paid search, email marketing, content marketing, and more.
With an online business, product delivery is crucial, and you can describe your logistics plan and more in the business operations section of your plan (another aspect of selling that we’ll cover later on).
Finally, there’s your financial plan and forecasts. How much money do you have, either through your own funds or from investors? What type of revenue and expense projections can you provide to potential lenders or partners? The three basic financial statements you’ll need to create as you operate your business are the balance sheet, income statement, and cash flow statement. Let’s jump into the nitty gritty of financial planning.
As a new business, you can’t know with certainty what your sales will be, so you’ll make an estimate with projections called a sales forecast. The money that you bring in through sales (and, if applicable, through other income streams) will be your revenue.
Here’s one way to create a monthly or quarterly sales forecast, with each bullet point representing a column in a spreadsheet.
- List the names of products sold in each line of this column; for purposes of sales forecasts, you don’t need to have a separate line for blue widgets, and then red ones, and then yellow ones if these widgets cost the same. You could simply write “multi-colored widgets” and then the number sold. (On the other hand, there will likely be other reasons why you’ll want to know which colors are most popular, including for supply chain and marketing reasons, so feel free to organize in a way that works for your business.)
- List the corresponding price for each product.
- List how many of each product you sold in the timeframe covered; perhaps Q2 of year one.
- Next up is unit costs. This includes costs of parts, assembly, and so forth (your costs of goods sold or COGS).
- In the next column, multiply your number of units times the cost of each unit. This will let you know what your costs of sales/direct costs are.
- Subtract your cost of sales from your revenue to determine your net revenue on each product.
- Total up columns C, D, F, and G.
Use spreadsheet formulas so that, if you change a number—say, the sales figures in C3—corresponding calculations can automatically and accurately be made.
For example, by adding 25 more unit sales in C3, you’ll get this:
This is a simplified version of what a sales forecast might look like for your products. In reality, there are issues of discounts, returns, and so forth that also need to be considered. You would want, for example, to also calculate your gross margin percentage (not just dollars) to see how they fit within your industry standards and more. But, these examples illustrate the point.
A sales forecast can’t be a standalone document, however; you’ll also need to create an expense budget that includes salaries, equipment, website expenses, insurance, marketing costs, payments on loans and so forth. In other words, what are the costs you will incur to be able to sell what you forecast? There will be some fixed costs, such as salaries, and some variable ones, such as advertising. Also check with the IRS and professionals you hire to make sure you’re ultra clear on what taxes you’re required to pay.
Investigate what insurances you need to protect your company against lawsuits and claims of liability. What about vehicle insurance for anyone employed by your company who needs to drive for work? Transit insurance if you’re sending a shipment out to a warehouse? How much do you need in coverage for each?
At what point will you break even, when your sales and expenses match up? At what point will you make a profit, with revenues greater than expenses? As you scale up, how will that affect your expenses?
If you’re looking for investors, they will want to know this information and have it solidly backed up. To help keep track of the financial health of your business and to provide information when needed, there are certain documents you’ll need to regularly create.
The SBA is a wealth of information, including about balance sheets. This financial statement shares your company’s assets, liabilities, and owner’s equity at a certain point in time. You may decide to create one annually—or quarterly. Here is a free printable balance sheet template you can download.
The first page lists what you own (your assets), while the second page lists what you owe (your liabilities) and the owner’s equity, which is the difference between the two. The two columns must always have the same total and can show a positive or negative owner’s equity:
- If, for example, you have assets of $10,000 and debts of $6,000, then your owner’s equity is a positive $4,000.
- If, however, your assets are $10,000 and you owe $15,000, then your owner’s equity is a negative $5,000 and you owe more than you are worth.
If you divide your liabilities by your assets, then you have calculated your debt ratio. In our first example, that would be 60 percent. How does that compare to other companies in your industry?
Income Statement (also known as Profit and Loss or P&L)
Here is a free printable template for an income statement. You would list your revenue and then subtract your costs of goods sold and expenses to get a financial snapshot of your company’s performance at a certain time.
Your revenue is the money coming in through your sales and any other income streams, while the cost of goods sold (COGS) represents what it costs you to make or obtain what you sell. If you subtract the COGS from revenue, this represents your gross profit—in other words, profit before you need to pay your expenses. You then subtract your operating expenses, which includes what you’re spending to operate your company, along with depreciation of capital assets like equipment, research and development costs and so forth. What’s left is your operating income. And, once all expenses are subtracted from revenue, you have arrived at what’s called your bottom line: the amount of profit or loss that occurred in this timeframe.
Cash Flow Statement
Here is the template for a cash flow statement. Cash flow has been described as the life’s blood of a business, and for good reason. You could, for example, own plenty of expensive equipment, which can make your balance sheet look great—but you may not have the liquidity (cash and accounts that can easily be turned into cash) to meet your expenses. Or, you could have lots of accounts receivables (money owed to you by customers) but, if invoices aren’t paid, you still may not have the cash you need to pay your own bills.
A cash flow statement, then, shows the cash going in and out of your business to give you an overview of your company’s ability to meet expenses. A lender or potential investor will likely want to see this statement to see how well your business is generating and then managing its cash position—in other words, how you fund operations and pay your debts.
Here’s an overview of how to handle your cash flow statements.
Pricing Product Strategies
When you start your online business, you’ll need to set your prices. This can involve investigating what other companies are charging for similar products and, whenever possible, estimating what their gross margins must be for comparison purposes. Larger companies will likely be paying less per item for parts and products than ones who order in smaller quantities.
When initially setting your prices, one method involves simply figuring out what people are willing to pay. If you’re selling commodity items without bells and whistles, you may need to charge what the market can bear. Meanwhile, you can also focus on creating innovative products with benefits not found elsewhere in the market today and then charge more for your specialty versions.
Or, to help gain entry into the marketplace, you might calculate how much less you can charge than the more established players and then dazzle customers with your service before edging up your prices. On the flip side, perhaps you plan to offer premium services that can help to justify higher prices from the start.
No matter what method you choose, prices need to be set in a way that:
- Generates enough sales for your business
- You can cover your expenses and then earn a profit
Expenses to consider include costs to:
- Meet payroll
- Provide benefits to employees
- Make loan payments
- Lease or buy equipment
- Make your products
- Ship products to you, if using a manufacturer
- Ship products to your customers
- Get professional advice from lawyers, accountants, and consultants
- Pay for website expenses, from your domain name to hosting fees, and to create content for the site
- Pay payment providers for online purchases
- Warehouse your products and manage inventory
- Have an office, furnish it, and pay utilities
- Meet your tax obligations
- Purchase insurance
Pricing isn’t typically a set-it-and-forget-it task. So, you’ll need to regularly review your pricing strategies. When, for example, should you offer a sale? Provide a discount coupon to reward shoppers? Raise your prices?
Some people have the ability to use the bootstrap method to fund their new businesses. In short, you pay for your business yourself. Others ask friends and family members for a loan. Still others apply for bank loans. If that’s the strategy you plan to follow, be sure to explore options because there are a wider variety today than in the past. Square, for example, offers loans up to $250,000 (and as compact as $500).
Next, you’ll need to decide your business entity, with the IRS calling these the most common:
- Sole Proprietorships: This is when you own a business by yourself, and it’s not incorporated. If you go that route, here is tax-related information.
- Partnerships: This is when two or more people own a business, with each person contributing in some form (“money, property, labor or skill”) and who each expect “to share in the profits and losses.” Here is tax-related information.
- Limited Liability Company (LLC): LLC membership regulations vary by state, but most don’t have restrictions on ownership types. This means that owners can be individual people, as well as corporations, other LLCs, and so forth. Most states also allow single-owner LLCs. Here is tax-related information.
- C Corporations: The people who form a C corporation, meaning the “prospective shareholders,” are in effect trading money and/or other assets for capital stock from that corporation. If you go that route, here is tax-related information.
- S Corporations: This is a particular type of corporation, one where the company’s income and loss, deductions and credits are passed through in a different way. Here’s more tax-related information.
In today’s gig economy, there are plenty of freelance writers, artists, designers, and so forth, and they often are set up as sole proprietorships (although some like the legal protection of incorporating). It isn’t unusual for individual entrepreneurs to pair up with someone who possesses skills they lack. Using our first example, a freelance writer and a web designer might work so well together that they form a partnership to offer online content services. As business models become more complex, they’re more likely to choose to become an LLC or corporation.
To decide which structure is best for your business, you may decide to consult with an attorney and an accountant. You can review the IRS information, as well. Plus, the Small Business Administration shares the pros and cons of the various types of business entities, including less common ones. We’ll provide overviews of some of the more typical types.
This is the easiest business structure to create—in part because, if you don’t register yourself as any particular kind of business, then you’re automatically categorized as a sole proprietorship. As the sole business owner, you have complete control of all the decision making and you still have the ability to get a trade name if you choose to do that.
Potential downsides include that, when you are a sole proprietor, your business is not a separate entity from you, which means that you can be personally liable for business debts, lawsuits, and the like. Plus, it can be harder to get a bank loan and, as a sole proprietor, you can’t sell stock to raise funds.
Some business owners find that having the ability to make all the business decisions is appealing, while others may ultimately decide that they would prefer a structure where others also contribute and take on some of the risk. Some business owners may therefore start out as a sole proprietor and then choose another structure.
If there will be two or more people owning a business, then a partnership is the simplest structure. As with a sole proprietorship, business owners sometimes start out as a partnership to test their business concept and then decide to switch to another structure.
With a limited partnership, there is one person—the “general partner”—who has unlimited liability. The other partners have limits on their liability, but that often means that they have limited say-so in how the business is run. Specifics of how this works should be carefully described in the partnership agreement. When this type of business makes a profit, each partner needs to account for his or her share on personal tax forms, with the general partner also needing to pay self-employment taxes.
As long as each partner is satisfied with his or her role that’s described in the partnership agreement, this business entity can work out well. If, however, the general partner finds that he or she has too much responsibility and/or liability, as one example—or the limited partners feel constrained—then there can be challenges that should be discussed for the successful growth of the company.
Limited Liability Company (LLC)
There is also the limited liability company (LLC) that combines the benefits of a partnership with those of a corporation. In most cases, for example, an LLC protects your personal assets if the company is sued or needs to file bankruptcy.
LLC partners are considered to be self-employed and need to pay taxes in that way. Profit and loss must be appropriately addressed in the partners’ personal income tax filings but no corporate taxes need to be paid. If a partner leaves your company, then you may need to dissolve the LLC partnership and craft a new one if the partnership agreement doesn’t effectively address that situation.
The quality of any partnership depends upon the skills and dedication of each partner, and how well they ultimately work together to achieve their goals.
Corporations are different from other business entities in that they’re considered to be legally separate from their owners. They therefore provide owners with the strongest protections against personal liability because the corporation itself—with a standard one known as a C corp—can be held legally liable when issues occur. Corporations can make a profit, with the corporations paying income tax on those dollars.
If a shareholder leaves the company, the corporation doesn’t need to be dissolved—something that can happen with partnerships. Plus, C corps that go public can sell stock to raise funds.
Downsides of forming a corporation include the costs to incorporate, which are higher than the other options. Plus, because of regulations, there is significantly more record keeping, reporting and so forth with corporations and, if the company pays out dividends to stockholders, profits can be taxed twice: once on the corporate profit and again when stockholders need to pay them when filing.
An S corporation (S corp) is structured in a way to prevent the double taxation that can happen with a C corp and is a business entity that’s allowable in some but not all states. Under this entity, profits and some losses can be passed directly to an owner’s personal income; meaning, without corporate taxes being paid on those dollars. Different states handle the specifics differently, so be sure to understand how your state operates.
Pros and cons of an S Corporation are in many ways the same as a C Corp, plus there is the following restriction: you will be limited to 100 shareholders and each of them must be a United States citizen.
Registering Your Business
The SBA provides a wonderful resource to guide you through the registration processes. Step one, the SBA says, is to use your location and business structure to determine what registrations are required. (They provide a detailed chart on this page.)
In most cases, it can be as simple as getting your federal tax ID and registering with state and local governments, as needed. In some instances, when you’re conducting your business under your own name, registrations may be optional, with advantages of doing so providing legal/tax benefits and personal liability protection. With an S corp, there is an extra step: Form 2553.
As far as state registrations, it depends upon where you live. You can use the scrollbar at SBA to select your state and find more specifics. Typically, states require businesses to register if they are a partnership, including an LLC, or a corporation. You’ll probably need to register with either the Secretary of State, or a designated business bureau or agency.
When considering what states you need to register in, states usually consider the following: a business’s physical location; where in-person meetings are often held; where a significant portion of revenue is generated; and/or where your employees are working. You may be able to register online, although some states require paper documentation. Fees for state registration vary, although they’re usually under $300. Your state may also require followup documentation.
Check with your county and city governments to see if you need to file for any licenses or permits. They often provide this information on their websites. And, if you’re going to use the DBA option as your trade name, then local governments may require you to register that name.
Trademarks and DBAs
We’ve referenced both of these in this chapter and now here’s more information about them from the SBA. A trademark can protect your business, as well as specific products, preventing other companies from using your trademarked names. Here’s more information by the United States Patent and Trademark Office.
Then there’s the DBA. Technically standing for “doing business as,” it’s commonly called your trade name, assumed name, or even fictitious name. Note that multiple companies can share the same DBA, even within one state. This gives you more wiggle room to choose one but, when selecting a DBA, trademark laws still apply, so make sure that you’re not infringing on one.
Even if no governmental agency requires you to register your DBA (if you’re using one), the SBA says there is often value in it. For example, when opening a business banking account, you can typically do so with your federal tax ID number and your DBA documentation.
Making plans and filling out paperwork to legitimize your business can feel like a daunting task. Yet, these steps are well worth your time and attention as you build the necessary framework for your company.
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