How to start a resale business

Pick what you will resell

Start with one category. Something you can learn, something people near you or online already buy, and something you can source again next month. A single great flip proves nothing if you can't find another one.

Each category comes with its own work. Clothing needs sorting, photos and lots of listings. Tools and small electronics need testing. Furniture and appliances need space, a truck and a strong back. Pick work you can actually do with the space, time and help you have.

If you plan to buy liquidation inventory, learn what it is before you buy it. Customer returns, overstock and scratch and dent goods arrive in very different condition. The liquidation inventory guide explains the differences.

Choose where you will sell

Your sales channel shapes everything else: how you photograph, how you price, how fast items move and what each sale costs you. The main options are online marketplaces, your own website, a physical store or booth, and wholesale to other businesses.

Start with one. Compare channels on what you keep after fees, shipping or delivery and returns, and on how long items take to sell. Headline price is the wrong comparison. The field guide on choosing your first sales channel walks through the math.

Make the business legal

Do this early. Much of it costs little, and many wholesale suppliers ask for it before they sell to you.

• Choose an entity. Many resellers form an LLCLLC An LLC (limited liability company) is a business entity registered with a state that exists separately from its owners., a company registered with the state that exists separately from its owners. A sole proprietorship is simpler but gives you less separation. Ask an accountant which fits you.
• Get an EINEIN An EIN (Employer Identification Number) is your business's federal tax ID number, issued by the IRS., your business's federal tax ID. You apply with the IRS directly, and it is free. Be wary of sites that charge for it.
• Register for sales tax with your state's revenue agency. Where you have to collect depends on sales tax nexusSales tax nexus Nexus is the connection between your business and a state that creates an obligation to register for and collect that state's sales tax., your connection to a state. Online sales can create obligations in other states, so confirm yours.
• Check local business license and zoning rules with your city or county, especially if you store inventory at home.

Rules differ by state and change over time. Use the state resources linked on this page to find official sources for your state.

Get your resale certificate

A resale certificateResale certificate A resale certificate is documentation used under applicable state rules when buying qualifying inventory for resale, so the supplier does not collect sales tax on that purchase. is documentation you give a supplier so they don't charge you sales tax on inventory you will resell. The idea is that sales tax is collected once, from the final customer. States use different names and forms, and some don't issue a certificate at all and accept an exemption form instead.

It is not the same as an EIN. The EIN is a federal tax ID. Resale documentation is a state matter. You usually need both. See EIN vs resale certificateEIN vs resale certificate An EIN is a federal tax ID for your business. A resale certificate is a state-level document used when buying qualifying inventory for resale..

Set up your bank account and books

Open a business bank accountBusiness bank account A business bank account is an account in the company's legal name, and it is where the business's provable financial history comes from. in the company's name, and run every purchase and sale through it. That account becomes your provable history, and lenders and suppliers may ask to see it later.

Then keep books from the first month. In resale, books are mostly inventory tracking. Record what each item cost, including freight and fees, and what it sold for. That gives you COGSCOGS COGS (cost of goods sold) is what the items you actually sold cost you, not what you spent on inventory during the period., the cost of the goods you actually sold, which is different from what you spent on inventory this month. A spreadsheet is fine to start. The first month of books field guide sets it up.

Find your first inventory

Your first purchase is tuition. Do not make your first lesson a truckload. Buy small enough that a bad result teaches you something without ending the business.

Early sources include local auctions, wholesalers, other resellers, online liquidation marketplaces and pallets from liquidation sellers. Before you buy, ask what condition the goods are in, whether there is a list of contents, who pays shipping, and what happens if the goods aren't as described. Check that the seller is real before sending money. The guides on where and how to buy liquidation pallets cover sourcing and verification.

When the inventory arrives, count it, check it and write down what you can actually sell. That number, not the number you paid for, is what you divide your costs by.

Price for profit

Price from landed costLanded cost Landed cost is what a unit really costs you once it is in your building and ready to sell, purchase price plus freight, handling, parts and the cost of what could not be sold., what an item really costs once it is ready to sell: purchase price plus shipping, fees, repairs and the share of items you couldn't sell. Then check what the same item actually sells for in your channel.

Learn the two percentages. MarkupMarkup Markup is how much you add to what an item cost you, expressed as a percentage of your cost. is profit as a share of your cost. Gross marginGross margin Gross margin is revenue minus COGS, usually shown as a percentage of revenue. It is what is left to cover everything else. is profit as a share of the selling price. The same sale gives a bigger markup number than margin number, and mixing them up overstates profit. See Markup vs marginMarkup vs margin Markup is measured against your cost. Margin is measured against your selling price. The same dollar of profit produces a bigger markup number than margin number..

Decide when you will mark items down before they start to age. Inventory does not improve with age, and the cash tied up in slow items is cash you can't spend on items that sell.