How to run a business on eBay
Many people have a skill which they would like to turn into cash, whether it’s the ability to spot a bargain at a jumble sale, knowing how to make craft items or just spotting a gap in the market which they are keen to fill. For most though, the idea of setting up in business by themselves doesn’t really appeal, especially if they have never done it before. Going it alone, creating a website, doing your own marketing in order to find customers and all the other vital aspects of running a business can seem daunting, as well as being time-consuming and potentially costly.
Running a business on eBay is a great way to test the market for your skills without having to commit to holding a large amount of stock or having to deal with the details of starting up your own business. The website provides everything you need to list the items you have for sale, set your prices and manage interactions with your customers. You can also use the site to research your potential customers by seeing what else is out there and getting an idea of the kind of pricing the market will bear, and because eBay is already hugely popular amongst internet shoppers, you don’t need to spend a huge amount on advertising or marketing so you don’t need to invest your savings in an idea that might not be profitable. There are a few things that you will need to consider before you go into business on eBay.
Whilst some businesses will find that their pricing structure is relatively simple to decide, others might be more complicated. If you spend time producing or locating items, then you will need to factor that in when you decide on a selling price, and it is important to include any postage or listing fees in to ensure that you aren’t losing money on any of your transactions. Whether you want to earn a little extra spending money or intend to turn your business into a full time job, keeping track of your outgoings in relation to the money you are earning is an important aspect of making your business profitable. From the cost of buying jiffy bags to the price of petrol, getting a real picture of how much you are spending on your business is vital to ensuring your profitability.
eBay publishes lists of all their fees, which can vary depending on the category in which you are advertising, so take these into account when you are working out your potential profits. From choosing how many photos to include on your listings to deciding whether it is worth offering free delivery, there are quite a few decisions to be made as your business grows and keeping track of them will help you to maximise your profits.
One of the things that people often overlook when it comes to running their business is the time that they have to put in to it. Whether this is spent actually making the items you are selling, the time you spend sourcing products that you buy in from elsewhere or even the time it takes to correspond with customers and package up their orders, it is important to keep track of it. You may find that you aren’t pricing your products at a rate which reflects the amount of time you invest in which case you can adjust your strategy accordingly to pay yourself a reasonable hourly rate.
You will also need to allocate some time for dealing with customer queries, processing any returns or issuing refunds. The way eBay is set up means that most of these processes are relatively easy, but you will need to ensure that you deal with queries in a timely manner in order to comply with their best practice recommendations. You will also want to ensure that your feedback is good, so keeping in touch with customers wherever issues may arise will work in your favour in the long run.
One of the good things about using eBay for your business is the amount of information available. You can see which products or types of products sell best, learn about the best time to list items and keep track of your communication with your customers. It is important to ensure that you retain copies of all the relevant details somewhere for your own reference as well as some information will only be stored for a limited amount of time on eBay’s systems. You might need to provide details of your income to HM Revenue and Customs so having your own copies of all the details of your eBay business is always a good idea.
If you are earning money from your online business, then you will need to let HMRC know that you are self employed. Even if you have a job, you will need to declare any income that you have which is not taxed at source, which means you will need to complete an annual self-assessment tax return. Even if you don’t turn a profit, you will still need to complete a tax return with details of your income and outgoings to show that you are not liable for any tax.
Registering with HMRC is really easy to do – you can contact them by phone or complete the process online and all you will need to do is make sure you have a few details to hand. They will ask for your name and address and that of your business, as well as your National Insurance number and contact details. You will then be sent everything you need to log on to HMRC’s online self-assessment website, and it is worth familiarising yourself with the process in order to ensure that you aren’t hit with any nasty surprises when you come to file your tax return for the first time.
How to grow your business
For many people, eBay is an ideal medium for promoting and selling their products or services, and there are sellers on the site who are turning over significant sums. There are a number of tools available through the site to help you promote your eBay business, and you can take advantage of their seller’s guides to ensure that you are doing everything you can to make your listings searchable and show your products in their best light. It’s always a good idea to ask someone to have a look at what you have posted online to check for mistakes, point out any way in which you could make your listings easier to find or offer suggestions on other information you could include.
Researching other eBay businesses, learning about your competitors and spotting opportunities in the market place can all help you to take decisions which will increase your profits and reduce your costs. Some people engage an accountant as soon as they go into business, and those who don’t often choose to use an accountant when their business starts to grow.
Not only could an accountant take some of the pressure off you to spend the time needed to keep your financial affairs in order, but a specialist in self-employment and running small businesses could offer you valuable advice on how best to grow your business. Your accountant can also help to identify areas where you could make savings and help you plan for your future, whether you want to create a business which you can sell, plan for your retirement or just expand beyond eBay to run your own website or physical shop.
Becoming a Limited Company
For many people, becoming a Limited company can help to increase their take-home pay from their eBay business. If your profit is more than £25,000 a year, then you may well benefit from the tax planning advantages and ability to plan for the future by trading as a Limited company. Your accountant will be able to talk you through your options, but as a Limited company you can benefit from some tax planning opportunities which are not available to those who are simply self employed.
Running a Limited company need not be much more complex than being self employed, but you will need to undertake a little extra admin work throughout the year. As a Limited company you will need to provide your company accounts to HMRC once a year as well as completing a self-assessment tax return for yourself as an individual. However, you will also be able to benefit from tax planning, for example if you think your annual income is likely to fluctuate significantly, then trading as a Limited company can help you to average out your tax liabilities so you don’t end up paying more than you need to.
As your business grows, you could benefit from savings on National Insurance by paying yourself a fixed salary and take advantage of the tax advantages of making regular pension contributions. There are a range of options for saving money and increasing your take-home pay, so trading as a Limited company has many advantages which usually outweigh the time taken for the additional admin.
Plan for the future
Running an eBay shop is just like running any other small company – having a business plan will enable you to measure your success more effectively so it is a good idea to think about what you want from your business in the long term. An accountant who has experience of helping small businesses will be able to help you with financial forecasting, increasing your turnover and making your business more profitable.
If you are thinking about setting up an eBay business and would like some advice on your taxation needs, please call us on 0500 234111/01442 275767 or email: firstname.lastname@example.org.
You may also find the following pages helpful, if your thinking about making the move to self employment.