How to Start an Online Reselling Business

With the rise of e-commerce, starting an online reselling business has become one of the most accessible ways to break into entrepreneurship. Whether you’re interested in selling vintage clothing, electronics, or other items, the reselling business offers a flexible way to generate income with relatively low overhead. However, like any business, it requires careful planning and execution.

In this guide, we’ll cover everything you need to know about starting your online reselling business—from the initial steps to important tax forms, avoiding common pitfalls, and how much capital you’ll need to get started.

How To Start a Business: Step by Step

1. Choose a Niche
   The first step is to choose what you want to resell. Choosing a niche is the foundation of any business. Your niche determines your product selection and target audience. Picking a niche you’re passionate about ensures that you stay motivated, while also meeting market demand. Pick a niche that aligns with your interests and market demand. Popular niches include vintage clothing, electronics, collectible items, and home goods.
2. Research the Market
   Before diving into any business, thorough market research helps identify opportunities and competition. Investigate market trends, competitors, and price points. Identify your target audience and what they value in terms of product variety, pricing, and quality.
3. Select a Reselling Platform
   You can choose between online marketplaces (e.g., eBay, Amazon, Poshmark), social media platforms, or your own website. Each platform has its advantages, such as built-in customer bases and varying fees.
4. Source Your Inventory
   Start by sourcing inventory through clearance sales, thrift stores, or wholesale suppliers. Finding reliable sources is key to maintaining consistent product quality and availability.
5. Set Up a Business Structure
   Decide on your business structure—whether you want to operate as a sole proprietor, LLC, or corporation. Each structure has different tax implications and legal protections.
6. Create an Online Presence
   Build your brand with a website or social media profiles to showcase your products. Focus on user-friendly design and ensure customers can easily make purchases or inquire about items.
7. Launch and Market Your Business
   Once everything is set up, start marketing your business through online ads, social media, or email newsletters. Utilize SEO tactics to boost visibility.

11 Things To Do Before Starting a Business

Before you officially launch, make sure you’ve checked off the following items:

1. Create a Business Plan
   Outline your goals, target market, and strategies for sourcing and selling items. Your business plan will serve as your roadmap for growth. The SBA provides a free business plan template.
2. Register Your Business
   You need to officially register your business with your local or state government, ensuring it complies with legal requirements. Choose a business name and register it with the appropriate authorities in your region. Learn more from the SBA about registering your business.
3. Get an Employer Identification Number (EIN)
   An EIN is required for tax purposes if you plan on hiring employees or forming an LLC or corporation. Even if you don’t have employees, you may need it for your business. Apply for an EIN on the IRS website. 
4. Open a Business Bank Account
   Keep your personal and business finances separate by opening a dedicated business account. Bankrate explains why and how to open a business account.
5. Choose Accounting Software
   Implement an accounting system early on to keep track of income, expenses, and taxes. Use software like QuickBooks or Xero to manage your business’s financials, such as expenses, sales, and taxes.
6. Apply for Necessary Permits
   Depending on your location and products, you may need certain permits or licenses to operate legally. The SBA offers detailed information about permits and licenses by state. 
7. Set Up Inventory Management
   Efficiently track inventory levels, sales, and reorder points to avoid running out of stock. Software like Zoho Inventory can help.
8. Secure Reliable Shipping Partners
   Research shipping options and choose the best ones for your business. Look for cost-effective and fast services. ShipStation lists the best shipping solutions for e-commerce businesses.
9. Define Your Return and Exchange Policies
   Make sure you have clear return policies in place to manage customer expectations. BigCommerce explains how to craft an effective return policy. BigCommerce Return Policy Guide
10. Purchase Business Insurance
    Business insurance can protect you from unforeseen events like product damage or customer claims.
11. Prepare for Taxes
    Make sure you’re aware of the tax obligations for your business type and jurisdiction. Stay organized to avoid issues during tax season. The IRS offers guidance on small business taxes.

Tax and Business Forms You’ll Need To Start a Business

1. Business License or Seller’s Permit
   Depending on your state, you may need a seller’s permit to resell items. Seller’s Permit Guide – LegalZoom
2. Sales Tax Permit
   Most states require resellers to collect sales tax from buyers. Make sure you apply for a sales tax permit.
3. Form W-9
   You’ll need to fill out a W-9 form for tax identification if you’re dealing with contractors or wholesalers.
4. Form 1040 (for Sole Proprietors)
   Sole proprietors file their business taxes through their personal tax returns using a Schedule C on Form 1040.
5. Form 1065 or 1120 (for LLCs and Corporations)
   LLCs and corporations will need to file separate business tax returns.
6. State Business Forms
   Each state may have different tax forms and filings required for businesses. Check with your state’s business administration office.

Startup Costs: How Much Cash Will You Need?

The startup costs for an online reselling business can vary, but here are some common expenses to plan for:

1. Inventory Costs
   Depending on your niche, initial inventory can range from a few hundred to several thousand dollars.
2. Website and Domain
   If you plan to set up your own online store, you’ll need to budget for web hosting, a domain name, and website design.
3. E-commerce Platform Fees
   Marketplaces like eBay and Amazon charge fees for listing and selling items, typically 10-15% of the sale price.
4. Marketing Budget
   Set aside funds for digital marketing, including social media ads, Google ads, and email marketing campaigns.
5. Shipping and Packaging
   Plan for shipping supplies like boxes, tape, and labels. Factor in shipping costs depending on the weight and dimensions of your products.
6. Business Tools and Software
   Invest in inventory management software, accounting tools, and analytics platforms to streamline operations.
7. Insurance
   Depending on the scale of your business, you might need to purchase business insurance.

20 Mistakes To Avoid When Starting a Business

Starting your reselling business on the right foot means avoiding common pitfalls. Here are 20 mistakes to watch out for:

1. Failing to Research the Market
2. Underpricing or Overpricing Products
3. Ignoring Customer Feedback
4. Not Tracking Inventory Properly
5. Overspending on Unnecessary Tools
6. Neglecting Taxes and Business Forms
7. Trying to Sell Too Many Products at Once
8. Using Poor-Quality Product Photos
9. Ignoring Shipping Costs in Pricing
10. Failing to Build a Brand
11. Skimping on Customer Service
12. Not Keeping Up with Market Trends
13. Not Having a Solid Business Plan
14. Forgetting About Taxes
15. Neglecting Legal Obligations
16. Not Having a Backup Inventory Plan
17. Ignoring Competition
18. Choosing the Wrong E-commerce Platform
19. Over-relying on a Single Supplier
20. Not Keeping Your Personal and Business Finances Separate

Final Thoughts

Starting an online reselling business is a great way to earn extra income or even build a full-time enterprise. However, it’s important to follow the right steps, plan for startup costs, and avoid common mistakes. By carefully managing your business structure, inventory, and taxes, you’ll be well-positioned to succeed in the competitive online marketplace.