What is sometimes forgotten, however, is that running a small eBay business is not simply a matter of sourcing inventory and selling effectively. There are a number of administrative and legal business concerns in general that must be seen to as you run your business. To ignore these concerns is to risk running afoul of the law and/or seeing your business ultimately closed, even if sales were brisk and profits good. So pay attention to these concerns and don’t let them become pitfalls by catching you unawares.
- Don't forget to register or license your business. Most localities require some sort of registration or licensure if you plan to own and operate a for-profit business of any kind. Laws vary by city, state, and nation, but you shouldn’t assume that you can simply begin, without any sort of paperwork, buying and selling with the intent to generate income. Visit your local commerce authority and register your business so that you are engaging in commerce lawfully, rather than risking enforcement action.
- Don't ignore your local zoning and commerce laws. Even with a business license, many jurisdictions draw a distinction between simple “business activity” and activity in which you will maintain inventories or accept and send regular shipments. Beyond simply registering or licensing your business, be sure that you are permitted to engage in this type of business at the location where you plan to conduct it.
- Don't lose track of your tax responsibilities. Two taxes should concern the eBayer (in particular the U.S. eBayer) very much—personal income/self employment tax and sales tax on retail sales. Many eBay sellers (certainly all U.S. for-profit sellers) must pay a percentage of their income to the government as income tax. Many eBay sellers also live in cities or localities that require retail sellers to collect “sales tax” as a percentage of sold item value. Be sure as a seller to check the laws in your location, to set aside the necessary portion of your profit in order to pay income tax, and to collect sales tax, if necessary, from eBay buyers.
- Don't fail to insure your business and your inventory. As you grow, particularly if you maintain an inventory, the amount of value tied up in your business at any one time will increase. As this occurs, you should begin to price business and business inventory insurance, so that you won’t suffer a catastrophic financial loss if your business is affected by natural (or man-made) disaster. For large or very valuable inventories, insurance is almost essential. Don’t think that homeowners’ insurance will automatically cover your inventory if you run your eBay business from home—talk to your provider about your policy to be sure.
- Don't forget to maintain meticulous records. Whether you use a paper ledger, a computer spreadsheet like Excel, or some other business management system to keep records, remember to keep them religiously and accurately, since it is often on the accuracy of your excellent records that the other items above will depend. Track everything you can think of: what you buy, what you sell, how much it costs, how long it takes you to sell it, how many of the sold items come back in refunds, and so on—simple business tracking is certainly the key to tax preparation and submission and insurability.
Ready for more? Read on to learn about four more small business pitfalls that you should take care not to make.