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Turning a small investment into a successful business
Dear SmallBiz Adviser:
How do I go about starting something very small with $1,000? I'm
thinking about buying pallets of merchandise that did not sell at
department stores.
Rosie
Dear Rosie:
Many people would love to have $1,000 free-and-clear
to start a business venture. Many do not believe you can succeed.
I, for one, know you can.
In this situation, you are considering the purchase
of discontinued merchandise for resale. Your first step is to decide
what type of legal structure you want to use to begin this venture.
The two most likely options are proprietorship or incorporation.
The less expensive direction is sole proprietorship. On the other
hand, incorporation reduces the likelihood your personal assets
will be exposed to liability in the conduct of business.
If you choose proprietorship, I suggest you begin
by filing for a fictitious name. Unless you intend to sell only
in your name, the fictitious name registration of your company is
necessary. Furthermore, I encourage it. If you begin to develop
success, it is easier to develop a company name, not yours.
You'll also need to register with your state's department
of revenue for a sales tax license. In the Internet world that is
referred to as a Value Added Reseller (VAR). If you sell directly
to consumers, the sales tax must be collected with the purchase
and then paid to the state department of revenue, usually on a quarterly
basis.
If you choose incorporation, take a look at Corporate
Creations for a better understanding of that process. Remember
you only have $1,000 to budget for the start of the venture. Therefore,
you may have to consider submitting your own incorporation papers
to the state. Incorporation kits are sold at office supply outlets.
Next, develop a simplified bookkeeping process. If
you opt for sole proprietorship, you will incorporate either
Schedule C or C-EZ in your annual personal income tax filings.
You will need to decide whether to use a cash or accrual bookkeeping
procedure for reasons of reporting inventory and sales on the Schedule
C. Review Internal
Revenue Service Publication 583 to better understand your record
keeping requirements.
Now let us determine the best manner to sell your
merchandise. There are several options:
- Open a storefront similar to the "dollar"
stores.
- Sell at a flea market.
- Sell in a storefront online.
- Sell at an auction site online.
Storefronts, as in brick-and-mortar, are simply too
expensive for you at this time. All your money will be spent just
signing a lease. The first month of rent and deposit could easily
wipe out all your cash.
Selling at a flea market is an inexpensive alternative.
Many flea markets rent you a space (stall) for a low rate. It is
usually up to you to provide your own tables and display equipment
for the merchandise. I strongly suggest you visit a local flea market
to get a feeling for the type of merchandise sold, the sale prices
and the types of customers. The experience will help you develop
a vision of how to display and what prices to consider. While you're
there ask management for the prices to rent a space and any other
requirements and restrictions exist.
Selling in an online storefront can be more expensive
than a flea market. An online storefront has many similarities to
brick-and-mortar stores. Most clients expect online security, a
shopping cart format and a pleasant Web site. All these matters
will cost you money in software, developing site content and Web
hosting services.
In my opinion, selling at an online auction site such
as eBay
is a better choice than a flea market for a fledgling venture like
yours. The learning curve to set up a business on such a site is
longer, but you can use eBay's auction pages as part of your market
research. See how merchandise similar to what you propose selling
is promoted, its popularity as measured by the number of bids, shipping
rates, and the dollar value of winning bids.
Starting a successful business with $1,000 is possible.
Do your homework, fulfill the startup basics, and pay close attention
to what works for competitors who succeed.
I wish you well.
-- Posted: Aug. 2, 2001
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