How To Legally Start A Resale Business

There are many steps to consider when first starting a resale business. Whether you're a new or experienced in reselling, it's important to understand the legal aspects of turning it into a legit business.  After several years of resale experience, I turned my side job into a full-time entrepreneurship this past year. In this blog, we're going to explore how to turn your love of reselling into a legal business through a step-by-step guide.

Legal Aspects of Starting a Resale Business

One of the first steps in establishing your resale business is ensuring that you operate legally. Here are the key legal aspects to consider:

Choose a Business Structure

Before you begin selling, decide on the structure of your business. The most common options include:

• Sole Proprietorship: The simplest structure, where you and your business are the same entity. This is easy to set up but offers no legal separation between you and your business, meaning personal assets are at risk.
• Limited Liability Company (LLC): A popular choice for resellers because it provides liability protection while allowing flexibility in taxation.
• Corporation: More complex and usually unnecessary for a small resale business unless you plan significant expansion.

Register Your Business

Depending on your chosen structure, you may need to register your business with your state. If you’re operating under a name other than your own, you’ll need to file a Doing Business As (DBA) registration.

Obtain an EIN (Employer Identification Number)

An EIN from the IRS is required if you plan to hire employees or open a business bank account. Even if you’re a sole proprietor, having an EIN can add credibility to your business and help with tax filings.

Apply for a Business License & Seller’s Permit

Most states require resellers to have a business license and a seller’s permit, which allows you to collect and remit sales tax on taxable goods. Check with your state’s department of revenue for specific requirements.

Understand Sales Tax Requirements

If you’re selling goods, you’ll likely need to charge and report sales tax. Some states also require marketplace facilitators (e.g., eBay, Poshmark, and Amazon) to collect and remit sales tax on your behalf, but you may still have obligations, especially if you sell on your own website.

Open a Business Bank Account

Keeping your personal and business finances separate is crucial for accurate accounting and tax reporting. A business checking account and a business credit card will help you track expenses and income more efficiently.

Sourcing and Managing Inventory

Once your business is legally set up, the next step is sourcing and managing inventory effectively. Here’s what you need:

Where to Source Inventory for Your Resale Business

• Wholesale Suppliers: Buying in bulk at a lower cost to resell at a profit.
• Liquidation and Overstock Sales: Retailers often sell excess stock at a discount.
• Thrift Stores and Garage Sales: Great for finding unique, one-of-a-kind items.
• Retail Arbitrage: Buying discounted items from retail stores and reselling them online.
• Direct from Manufacturers: Building relationships with brands for exclusive deals.

How to Track Your Resale Business Inventory

Keeping track of your inventory is essential for understanding profits and avoiding overspending. Tools to help you stay organized include:

• Spreadsheets (Google Sheets/Excel): A simple and free way to track inventory, cost, and profits.
• Inventory Management Software: Paid tools like QuickBooks Commerce, Vend, or InventoryLab help automate stock tracking.
• POS (Point of Sale) Systems: If you sell in person, a POS system like Square or Shopify can track sales and stock in real time.

Tracking Sales and Costs For A Resale Business

To ensure profitability, you must track every dollar spent and earned. Here's how:

Essential Tools for Financial Tracking

• Accounting Software: QuickBooks, Wave, or FreshBooks can help with bookkeeping, profit calculations, and tax preparation.
• Expense Tracking Apps: Apps like Expensify or Everlance help track business expenses, especially for mileage and sourcing trips.
• Profit Calculators: Many resellers use online profit calculators to determine margins after fees and shipping costs.

Understanding Business Expenses

Your resale business will have several expenses, including:

• Cost of Goods Sold (COGS): What you paid for your inventory.
• Shipping Costs: Packaging, postage, and fulfillment fees.
• Marketplace Fees: Platforms like eBay, Poshmark, and Amazon charge selling fees.
• Software and Tools: Any apps or services used for accounting, listing, and marketing.
• Taxes: Set aside money for self-employment and sales taxes.

How to Have Profitable Prices As A Resale Business

To ensure a profitable business, you should price items based on:

• COGS + Selling Fees + Shipping Costs + Desired Profit Margin
• Research competitor pricing and adjust based on demand.
• Use pricing strategies like bundling or offering discounts on multiple purchases.

Learn More About The Resale Business

I've been reselling since 2018. What started as a side hustle quickly grew to my main job after only a few years of flipping clothing, shoes, and accessories. I have experience reselling on several online marketplaces such as Poshmark, eBay, and many others. Please feel free to reach out to me with any questions or concerns regarding your resale business. 

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