Musings ////

This newsletter will probably reach you as you return from your Labor Day holiday weekend. The dreaded eBay summer slowdown is finally over and the prime selling season starts today (Tuesday 9/6).

If you are like me you have been watching the non-stop news coverage of the escalating tragedy in New Orleans and along the gulf coast. Karen and I were last there for eBay Live in June of 2004. We spent three days in the convention center during a happier time. It was surreal watching the thousands of sick, thirsty and starving people gathered in front of the place where we had so much fun and where every day was a party.

When we were there New Orleans was eBay crazy. All over New Orleans there were posters that said Welcome eBay Visitors. If you went into a bar wearing an eBay hat everyone wanted to talk to you. Watching the news, I saw the camera pan around to Mulates, which was our favorite restaurant while we were there. Now it was just a backdrop to a sea of human misery. Karen and I just looked at each other and we both started crying.

Once the rescues finally started it was encouraging and uplifting to watch. I saw rescue workers of every race risking their lives to help people of every race. New Orleans has long been a city where people of all color lived and worked together in pretty good harmony –a city whose charm was built on the culture of Jazz and Blues mixed with the French-Cajun culture of good food, good music and letting the good times roll.

Looking at the destruction I don’t know if New Orleans can ever be rebuilt. I hope it can. The politicians are all promising to do so, but I think the outcome will be in doubt for some time. If you watch the news, the finger pointing and Monday morning quarterbacking has already started and we will be hearing about that for months to come. In the meantime, real Americans are ignoring the self-serving politicians & the ratings-driven press and are dipping into their wallets to help our fellow Americans --thousands and thousands of people who have lost everything they own.

I am proud to say that the eBay community has responded with the best of them. If you look on eBay today you will see literally thousands of charity auctions with the Giving’s Works seal (a yellow ribbon). eBay itself has pledged $250,000 to the relief fund and set up a special PayPal link where eBay members and PayPal users can donate to the United Way Hurricane Relief Fund. Unfortunately this has upset a lot of members. If you read the posts on the Hurricane Relief message board, a lot of members are leery of United Way given their past history of scandals and asking eBay to set up links where they can donate to the Red Cross and other charities. You can read the posts here or here:

There are two charities that are front and center in the relief effort –The Salvation Army and The Red Cross. Late,r there will be hundreds of other specialized and local charities that will become active and need your help, but right now the Salvation Army and the Red Cross are on the front lines spending more money each day than they are currently taking in.

Karen and I have already made a substantial donation to the Salvation Army and I am running auctions of souvenirs I picked up in New Orleans and donating all of the proceeds to the Salvation Army. If you would like to make a donation and have it magnified by two, eBay power seller, lecturer and author Janelle Elms –herself a survivor of Hurricane Andrew in Florida, is offering to match any donation you make to the Salvation Army up to a total of $10,000.

Jamelle's PayPal email address is: nel@nwlink.com . Just PayPal your donation to Janelle and make sure to put Salvation Army or Hurricane Relief in the message and she will match all donations she receives by September 9 th.

If you work for a company or a major corporation many of them are offering to match employee’s donations to the Red Cross –so you should check if they are doing that before donating, as this is another way to double the power of your dollar.

Watch out for fraud /////

A final word about donations: Major disasters bring out the best in us, but unfortunately they also bring out the evil elements who live on the fringes of our society. Watch out for phone internet sites and email scams. Just like the Phising scams and spoof emails you receive from someone pretending to be eBay, PayPal or your bank, there will be similar scams pretending to be major charities. Don’t click on the link in any email. If an email purports to come from a charity, just go directly to that charity’s web site and make you donation there.

One last item before we get to this month’s newsletter. We just opened a box shipped back from eBay Live! San Jose and discovered a bag of merchandise from the eBay shop that someone had purchased and left in our booth. Unfortunately the credit card slip had no name on it, but I do have the last four digits of the Amex card. If you left this package in our booth email me at ebaysellersnews@yahoo.com and tell us what was in the package and the last four digits of your American Express card. We will send your package of eBay goodies back to you. If I don’t hear from you, I will sell the items on eBay and donate the proceeds to the Salvation Army Hurricane Relief Fund.

IN THIS ISSUE

1. How To Run A Charity Auction on eBay
2. Three Reasons to Incorporate Your eBay Business
3. Now –Not April, Is The Time To Think About Taxes
4. Will My Product Sell on eBay? Checklist
5. Three Ways To Increase Your eBay Business
6. New Wholesale Sources For September 2005

1. How To Run A Charity Auction on eBay

eBay Giving Works enables you to list your items on eBay and donate part or the entire final sale price to your favorite nonprofit organizations. Unique search and listing features allow you to build your business while supporting causes important to you. To date, eBay sellers have raised more than $40 million for nonprofits through items sold on eBay.

To donate, when you get to the Pictures and Details page of the eBay Sell Your Item form, look for the link that says “donate a percentage of sale.” This will bring up a list of approved non-profits you can donate to (there is also a link to add a non-profit if your favorite one is not on the list). If this is your first eBay Giving Works listing, you will be prompted to create a MissionFish account, provide your credit card information to guarantee payment of your donation, and consent to terms in the MissionFish User Agreement.

After your item sells, collect payment from the buyer as usual. MissionFish will send you an email notification that includes the exact donation amount due and payment instructions. If you do not fulfill your commitment by the second Monday after your listing ends, MissionFish will charge your credit card. MissionFish then forwards the gift (minus $3.00 and 2.9% credit card processing cost) to the designated nonprofit on the 20th of the second month after your listing has closed and issues you a tax receipt. If you donated a portion of your proceeds to the charity you will still pay your eBay fees which unfortunately are not tax-deductible. If you donate all of it to the charity, eBay will waive the listing and final value fees.

Beside the processing fee, the other problem occurs when you encounter a non-paying bidder which unfortunately occurs fairly often. You have to go through the whole non-paying bidder process, which 6 times out of 10 will earn you a negative feedback. Once eBay has credited your fees, you can now fill out another form with MissionFish and request a refund from them. If something went wrong with your transaction and you refunded a buyer’s money, MissionFish will still collect the minimum $10 donation.

Admittedly these are small drawbacks, but they do pose challenges to the seller. If you want to understand the program better, read the eBay Giving Works FAQs. http://givingworks.ebay.com/sellerFAQ/

The other method is to run your own auction and donate the proceeds directly to the charity. However, there are some hoops you have to jump through to do this. First of all the organization has to be an IRS certified 501 3 (c) organization. That means they have to have filed their non-profit status with the IRS and been approved. Second you need a letter from the organization and you need to scan the actual letter into your item description so eBay can see it. How do you get such a letter? Well this week I just called the local chapter of the Salvation Army and told the lady who answered the phone what I was trying to do and what I needed. She said she couldn’t do it locally, but would have someone from the national office call me. Within 15-minutes I had a call and 15-minutes later a letter of authorization came over my fax machine. It was really pretty simple. I didn’t have a scanner, but I took a good digital photo and used the Supersize option, so eBay could blow the image up large enough to read it and I was good to go.

Running a charity auction is a great way to magnify the power of a donation. For example, the New Orleans Starbucks mug I am offering cost me $9.95 + sales tax, but is will probably sell for around $40 or $50 which I will send to the Salvation Army. I can only take the original cost as a tax deduction, but that is OK because that’s all I paid for it anyway.

2. Three Reasons To Incorporate Your eBay Business

“Oh come on – I am just a small seller” you think. “Why would I want to incorporate? Doesn’t that cost a lot of money and take a lot of work?” Let me try and answer those questions.

There are three reasons to incorporate:

• Image
• Liability
• Tax Considerations

Image - If you are trying to buy wholesale merchandise from wholesale companies, they don’t want to work with small resellers. Or if you are trying to get into wholesale tradeshows and merchandise marts, being incorporated makes this much easier. Incorporating is actually very simple and inexpensive (I will cover that below) but so many people don’t realize that and they automatically tend to think of any company that is incorporated as a larger legitimate company.

Liability – I have written about this before. We live in a country where lawsuit-hungry lawyers have gotten out of control. One of the richest areas for lawsuits is product liability. If you sell a product that injures someone you can be liable. You can buy product liability insurance but you would probably have to take out a second mortgage on your home to afford it. Incorporating can offer you protection from this liability. When you do business as a corporation you are considered a separate “person” under the law. If you sold a toy on eBay and some child choked on it the victims lawyer would try to sue you and if they won they could attach your salary or other income, your investment accounts and/or the equity in your home. But if a corporation sells the same item on eBay, the victim/plaintiff could only sue the corporation. If they win , they can only attach the assets of the corporation. It is a little more complicated than this, but I only have so much room in a newsletter article, so I have posted an article by an attorney, Mark Levine on our free articles page that goes into more detail on this topic.

Tax Considerations – A corporation doesn’t afford the ability to dodge taxes, but you can get some more tax breaks under the corporate umbrella than you can as a sole proprietor. I have been incorporated for the past two years and each year I see many more tax savings than when I was a sold proprietor. If you incorporate you should hire a CPA but they are not that expensive. Mine charges $300 a year to do my corporate tax returns –but his skill combined with my corporation saves me far more than that every year. If eBay is not your full-time job and you work or have another income, the corporation can even help reduce the taxes you pay on your other income in many cases.

How about those other questions I asked at the beginning? Doesn’t it cost a lot and take a lot of work? There are dozens of companies on the internet offering on-line incorporation, some of them for as low as $150 plus the state filing fees. But you want to be careful. Take it from me and my personal experience, you don’t want a catch-all formula corporation. After some diligent searching I found an excellent company that offers a combination of online and off-line service. The company is Click & Inc. http://tinyurl.com/8z9rs and they sell an online package combined with personal, one-on-one service through email and the telephone to tailor a corporate package for your individual situation and for the state you live in or the one you may wish to incorporate in. They have two programs based on your needs. Their upgraded program comes with a lot of free bonuses and even 30 minutes of consulting time with a trained corporate business coach.

3. Now –Not In April, Is The Time To Think About Taxes

Millions of small eBay sellers clean out their garages and attics and spend their weekends going to garage sales to find things to sell on eBay. Although all income is technically taxable and should be revealed, when you have a garage sale, no one expects you to fess up to the IRS and claim the income and pay taxes on it. Likewise, most occasional eBay sellers don’t bother to state their income from eBay and pay taxes on it either. Are they avoiding taxes? Technically yes, but the IRS is too busy to chase after these minor tax avoiders.

If, however, you are going to be a professional seller, you will have to keep records of your sales and pay taxes on your profits. Having several times previously revealed that I am not a Certified Public Accountant or Tax attorney, I once again caution you to seek professional assistance in these matters. Nevertheless, I have been a small business owner for a large part of my life and have learned a few things about tax reduction strategies.

It is perfectly legal, moral and ethical to do everything you can within the law to minimize your taxes. The US Tax Code is very clear on this fact. You need to pay all the taxes you owe and not one penny more. There are plenty of perfectly legal things you can do to lower your annual tax bill and you should do every one of them.

Tax Reduction Strategies

If you want to minimize your taxes you will need to have a plan and follow it. The first thing you should do is sit down with your CPA and explain your business to him or her. It is imperative this person understand your business model before they can advise you. Everyone thinks a CPA is expensive. Actually it’s expensive not to have one. They save you money and can help you avoid an audit.

One of the most important lessons to learn about tax reduction strategy is that a tax dollar deferred is a tax dollar saved. There are taxes you will eventually need to pay, but if you can legally delay paying them until a later date, you are saving money because you have the use of that money until you pay it to the IRS. Here is an example: Near the end of the year you decide that you will buy a new computer in January. Whenever you purchase equipment, the IRS allows you to write off all or a portion of the cost as an expense against your income. If you purchase your new computer on or before December 31 st instead of January 1 st. You can take the expense against income in the current tax year. That will reduce your profits and thereby the tax you will pay on those profits.

When you purchase your inventory and how you account for your inventory can affect your taxes. You will need to select the “cash” method or the “accrual” method of counting your inventory value. Then you will need to decide if you treat your sales from inventory as FIFO –First In/First Out or LIFO – Last In/First Out. There are several tax-savings strategies available that depend on which of these decisions you make. You should discuss this with your accountant. To advise you of the best one, he or she will need to know how often your inventory turns over, the value of your inventory as a percentage of your sales, and how much inventory you tend to accumulate early in the year and dispose of late in the year. This is very important. If you are moving thousands of dollars of inventory through your business during the year, the tax implications can be enormous.

You can also set up a tax-advantaged retirement plan. Setting up a Keogh Plan or a SEP-IRA can save you thousands of dollars in taxes each year. The tax savings can be so great that I have known business people to borrow money to put into these plans near the end of the year to get the savings and then pay the money back after the end of the year. What you pay in interest for this short-term loan is far offset by the tax advantage.

There are ways to run your business to minimize your taxes.

There are two types of tax reduction categories: Business expenses and business tax deductions. A business expense is money you spend running your business such as postage, purchasing inventory, putting gas in the company car, paying a salary to an employee and so on. A deduction is an expense you are allowed to take on your tax return after you have calculated your income minus expenses. Some popular deductions include charitable donations, deductions for educational expense (attending an eBay seminar or buying one of my books for example).

The first step in minimizing your taxes is to keep good records of all expenses and deductions. If you are spending money on business related expenses out of your own pocket and not doing an expense report to get the money back from your company, you lose every time you do this. Although it is sometimes necessary to spend your own personal money in cash or by using your personal credit card, I find the easiest thing to do is run everything possible through the company’s books. The easiest way to do this is with a program such as Quicken or Quickbooks.

We have our corporate bank account set up in QuickBooks so we can write checks from our corporate account right on the computer. We also have a commercial checkbook where we can write checks. We carry this to tradeshows and merchandise marts when we are shopping for inventory. Once back in the office we just enter them into QuickBooks. We also have a debit card tied to the corporate bank account. We can use that when paying for postage, business meals, renting a car while traveling on business, buying gas for the company car and so on.

Again the key to minimizing your taxes is to make sure that every single expense related to your business is accounted for in your profit and loss statement at the end of the year. Losing receipts and being sloppy with your bookkeeping can literally cost you hundreds, if not thousands of dollars a year. Additionally, if you ever are audited, having those records computerized on QuickBooks will save you hours and days of work preparing your records for the auditor.

The other key to saving taxes is to maximize the use of your business funds. If you want a new digital camera, let the business buy it (as long as it will be used for business-related purposes). There is nothing that says you can’t borrow the camera to take some photos of the kids on Christmas morning but the primary use should be for your business.

Don’t forget to account for sales tax on items you buy at retail to resell. We usually buy our goods from wholesale suppliers where we do not pay sales tax. But occasionally we will purchase a close-out lot of something from a store such as Wal-Mart or hit a big sale at one of the outlet malls. When this happens we pay sales tax. Almost every state has a procedure where you can recover this tax if you bought the item for resale. It is usually no more than listing the taxes on your quarterly tax form and deducting the amount from your total.

You can also use your children in the business. If you have children this is a great way to teach them something about business, having responsibilities and getting paid for working. At the same time, you get to deduct what you pay them as a business expense.

If your children are young (8-12) you might give them simple tasks such as cleaning your office, washing the company car, counting your inventory and so on. As they get older you can teach them to package your shipments and even use the computer to create your shipping labels. Once they are old enough to drive, they can take your shipments to the post office and run other errands. I once met a seller at eBay Live who sells games and toys. He employs his kids as marketing consultants. They play with the games and toys and even get their friend’s feedback on a new product before the seller buys a large quantity.

Another way to save taxes is to combine business travel with vacation. The IRS has some very strict rules about doing this, but they are easy to follow and can really reduce the cost of a vacation. For example, my wife and I went to Costa Rica a few years ago. While I was there I did some product research and we purchased about $5,000 worth of inventory to sell on eBay. I could not write off my Karen's expense, but I was able to write off a portion of my travel expenses against the business. I think that vacation cost us about $2,500 total and I was legitimately able to write off about $1,100 as a business travel expense.

We mentioned buying something at the end of the year earlier. End-of-year tax planning can be a really big issue for a business. The best thing you can do is sit down with your CPA in September and talk about your business plans related to purchasing equipment and inventory in the last three months of the year and work out a strategy.

4. Will My Product Sell on eBay? Checklist

Over the years I have developed a set of “rules” that I use to analyze a new product or product category before deciding to purchase it or sell it on eBay. It’s really more of a checklist than a set of rules, but if you follow them you may avoid costly mistakes. All products have life cycles. They go from introduction, to the normal or seasonal selling phase, to the late selling/pre-liquidation phase and finally they fall into the liquidation phase of their life cycle. How much you pay for a product is largely determined by where it is in its life cycle.

1. There are four levels of wholesale distribution: Manufacturer, importer, distributor and middleman. The closer you can get to the manufacturer, the better you will be able to buy your product. Rarely buy from the last level, the middleman. It is virtually impossible to make money.

2. Never buy a fad or short-lived product unless you are buying from the manufacturer or importer to get the lowest prices and are very early in the product life cycle.

3. Do not buy new or pre-introduction phase products, unless you are positive they will sell based on the past history of similar products.

4. Never buy a product during the late selling phase or the early liquidation phase of a product’s life cycle. The prices are just about starting to fall during this part of the product cycle --wait until they are fully in the liquidation phase and you will be able to buy them for much less.

5. Never buy a product if the quantity you are buying represents more than 10% of the available quantity in your marketplace (I.E. eBay).

6. Never buy a product if there are more than 50 competitors selling the same thing.

7. Never buy a liquidation or closeout product unless it has a recognizable brand name.

Of course there are exceptions to every rule, but you should be extra careful when you make them. Before you make any large investment in product inventory, always make sure there is a market for the product and you understand where the product is in its life cycle and how much supply is available on eBay. This will keep you from having to liquidate your inventory just to get rid of it.

5. Three Ways To Increase Your eBay Business

Once you have your business established the natural trend is to try and grow it. Top eBay sellers call this scalability. I am not sure if that is a real word or not, but it means is your business designed in such a way that you can scale it larger simply by adding more products and/or more auctions.

More Products: The ability to add more products depends on your product niche. If you are in an extreamly narrow niche such as collectible depression glass then you have to find a lot more depression glass to grow your business. This presents two problems. First it can be difficult to find rare collectibles. Secondly, if you do, you run the risk of putting too much similar product into the marketplace (eBay) and depressing the prices. You have just become your own competitor. The obvious solution to this problem is to expand into another --yet related, niche such as collectible carnival glass.

If you work in a niche that has lots of related products, rather than just getting more of the same products which could possible depress prices by increasing the supply, you would want to expand into related products that the same customer would buy. for example if you carried a line of high-quality dog collars and leashes, you could expand into grooming tools, dog-training books, dog beds, car ramps and car carriers and so on. You don't want to go as far as becoming a general supplier of all dog-related goods or you will be competing with Petco. You would want to find an example of each of these items that has some uniqueness to it such as an original design, or low cost, or very high quality and so on.

The other way to scale your business is to raise your ASPs. There are several ways to do this. You can move up the quality scale to higher-priced items in your niche or you can start selling sets of things instead of individual items. Back to the dog collar example, you could offer a matching dog collar and leash as a set instead of selling the two products separately. One woman sells bird seed. No one wants to buy a year's worth of bird seed at one time, so instead of selling single packages, she sells a deal whereby your order enough seed for the spring and summer season and she mails it to you in three separate shipments over the season. She makes one larger sale rathen than three small ones and she has the customer's cash up front for the larger sale but she doesn't have to ship 2/3rds of the order until later.

6. New Wholesale Sources for September 2005

Of course I hate to mention it again, but my favorite deal for drop shipping is still World Wide Brands Source Directory. It is a directory of Manufacturers who drop ship as opposed to distributors or middlemen. REmember, the closer you can get to the manufacturer of a product, the better your pricing.

Sahni Wholesale sells a wide range of unusual novelties --silly stuff but some of it sells pretty well. Another novelty supplier is Inter Trade, but they also carry other goods such as clothing, toys, clocks, and DVDs. They also sell adult items, so don't go there if you are offended.

Alten International sells a wide range of Cosmetic bags, jewelry bags and jewelry boxes.

OK - Here's an idea. We Make Bears For You is a company that makes customized teddy bears. If you can think up a clever idea for a bear, or a series of bears, you could carve out a nice little niche on eBay.

If you are looking for wholesale sources, don't forget to check out our Free Web Wholesale Search Engine.

Well that's it for this month. Karen and I are off to Las Vegas to teach the eBay Success Seminar on Saturday, September 10th at the Alexis Park, Hotel and Resort. We still have a few of the 50% discount tickets left. Click Here to read about the seminar and sign up. Hope to see you there.

Skip McGrath