Note: We are not lawyers and this should not be considered legal advice. Consult a lawyer for advice related to your specific situation.
When most people hear about the dropshipping business model, they get excited because it sounds really easy. And yes, it’s one of the easiest businesses to run from a fulfillment and operations standpoint. But it’s still a business. Which is why you need to have your ducks in a row in terms of setting up the proper components to make your business legit.
Here are the top things you can do to help build trust with your customers and make your dropshipping business legit.
Table of Contents
Create a Business Entity
This section is only applicable for US residents.
It’s tempting to open a dropshipping store without doing any of the paperwork for it. But this is really risky. If anything goes wrong in your store (i.e., a customer gets hurt from one of your products), your personal assets are on the line…unless you set up a business entity.
There are a few options for setting up a legit business entity for your dropshipping store.
Sole Proprietorship – “A sole proprietorship is the simplest and most common structure chosen to start a business. It is an unincorporated business owned and run by one individual with no distinction between the business and you, the owner. You are entitled to all profits and are responsible for all your business’s debts, losses and liabilities.” US Small Business Administration
Essentially, with a sole proprietorship, you don’t have to do any filings or paperwork, but you also don’t get any protection if anything happens.
LLC – An LLC (or limited liability company) is a formal business structure that creates a barrier between personal and business assets. An LLC combined the benefits and ease of a sole proprietorship with the legal protections of a corporation.
I set up all of my businesses under the LLC filing. But again, consult a lawyer for what’s best for you.
C Corp – A corporation is a completely separate entity from an individual. It’s taxed differently and is considered independent from the owners. This is the most formal legal business filings and is rarely used in the dropshipping world until several years of success.
To get help on which business setup you should use, and help actually setting it up, I recommend INCFILE, ZenBusiness, or a local lawyer in your area.
Open Separate Bank Accounts
To protect your personal assets, you’ll want to open a business bank account specifically for your business transactions. This helps with a lot of things in running your dropshipping business, including accounting, tracking revenue and expenses, and protecting yourself.
I recommend opening two accounts with the same bank: one checking account and one savings account. Use the checking account for accepting payments and paying expenses, and use the savings account to hold your slush fund and any tax liability you may owe.
You can open a business bank account just about anywhere. For local banks, make sure to check their fees; some have monthly charges and usage fees. Local credit unions are usually a good option.
I have a checking account at my local credit union and a savings account with Discover (they have the best interest rates).
Get a Business Credit Card
Because of the nature of dropshipping, you’re buying a lot of products online. If you use your personal credit card, things can get mixed up and it’s tough to track. A separate business credit card will keep your personal and business expenses organized, and add an extra level of protection for you.
Business credit cards also offer rewards. You can choose a card with mileage rewards, cash back, or other options.
If you don’t have a high enough credit score to get a credit card, you can use PayPal (including PayPal credit and their credit card offerings) or use your bank account. You could also purchase pre-paid debit cards and use those for online purchases. A credit card will make it much easier, but isn’t necessarily a requirement.
I have a Chase Ink card. It was easy to set up and I get cash back on all my business purchases.
Get a Professional Email Address
Using a free Gmail address is a dead giveaway that you’re an amateur. Consumer expect legit businesses to have branded email addresses. A branded email address is like the help@dropshipmktg.com address we use. Notice how we don’t use a Gmail email? That’s because we’re professional here.
When you get your domain through Shopify, you can set up a branded email address that forwards to another email. But you can’t send from a forwarding address. In order to set up your email address to both send and receive email, you can connect your Shopify domain to an email hosting provider like Gsuite, NameCheap, BlueHost, GoDaddy, and others.
If you get your domain through any other domain provider—somewhere other than Shopify—they most likely have an email hosting option available for a few bucks per month.
Business Insurance
Nobody likes insurance…until they need it. Getting yourself a business insurance plan can help protect you in case of any legal issues. You may not need it, but if you do, you’ll be glad you have it.
Hiscox is the leading provider of business insurance, and you can get a quote online in a few minutes. They’ll ask you a bunch of questions and tell you which types of insurance you need and what your quote is.
You can also consult a local insurance agent, but in general you’ll get the best rate going right to the source directly to Hiscox.
Have a Website Privacy Policy
When you visit a website, you usually see a “Privacy Policy” link in the footer. This is because it’s a standard requirement that discloses how a website collects, stores, and uses customer data.
Shopify has a built-in privacy policy template builder for customers, and sites like FreePrivacyPolicy.com offer, as stated in their name, free privacy policy templates. You can also create a free Terms & Conditions page from their templates as well.
If you have customers in the EU, you’ll also want to make sure you have GDPR requirements covered. Shopify has recommendations for making your site GDPR compliant.
Provide a Physical Address
Dropshipping involves physical products, which means you’ll need a physical mailing address. If you’re running your business out of your home, you probably won’t feel comfortable using your home address publicly.
By law, you’re required to include your physical address in any marketing email you send, and it’s best practice to have your address listed prominently on your website. You’ll also need somewhere to have people send returns. And you probably don’t want that to be your home address.
A PO box from your local post office is great, but some tools you’ll use in your dropshipping store require a physical address, not a PO box. Some UPS stores offer this as an option, but not all.
There are services called virtual mailboxes that give you a physical address, collect your mail, open and scan your mail, and forward mail when you request it. It’s a great option for having a physical address and also not dealing with a bunch of mail at your home or PO box.
A service like Traveling Mailbox will handle all of your physical mail for a few dollars per month. It’s pretty slick. It’s efficient, gives you privacy, and shows customers you’re legit.
Have a Customer Support Phone Number
Along the same vein as the physical address, you’ll want a professional phone number that customers can call. And again, you probably don’t want the number listed all over the internet to be your cell phone or home phone number.
A cloud service provider like Phone.com can provide a virtual phone system that’s professional…and private. You get a separate number and can choose from an online platform or call forwarding.
If you use Gsuite, you can get a dedicated Google Voice number. This isn’t scalable and isn’t particularly private, but it works OK. I’ve noticed my Google Voice numbers getting a decent amount of spam calls (even if they’re not listed anywhere) so just be ready for that.
Navigate Sales & Income Taxes
We’re not accountants, so be sure to consult someone who’s certified in this topic.
Depending on where you live, the type of business you set up, and other factors, your tax requirements will vary. There’s sales tax on the products you sell, and there’s income and/or business tax on the revenue you earn.
There are too many factors that go into taxes that we can’t lay them all out here, so you’ll want to consult an accountant. You can usually find a good one locally by asking your friends, or doing a local Google search. You can also find accountants online, but that’s riskier. Make sure you’re hiring a CPA and not just a bookkeeper.
If you’re using an accounting tool like Freshbooks or Quickbooks (which you should be), you can find a pre-approved accountant through those platforms as well.
All-in-one Business Setup
If you’re bought in on wanting to set up your legit dropshipping business, you can get all of these products/services from ZenBusiness.
They’ll help you get your business entity set up, get a legit business email, set up business banking, get insurance quotes, manage finances, help with accounting, and so much more. Check out all their services…even their all-inclusive plan is super affordable at $70/month. If you get each service individually, you’re looking at at least twice that.
When you start a dropshipping business, start a legit one. Make sure you set up all the required pieces and consult lawyers, accountants, and other professionals to make sure you’re set up for success.