Starting a wholesale business can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful wholesale business.
Importantly, a critical step in starting a wholesale business is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
14 Steps To Start a Wholesale Business:
- Choose the Name for Your Wholesale Business
- Develop Your Wholesale Business Plan
- Choose the Legal Structure for Your Wholesale Business
- Secure Startup Funding for Your Wholesale Business (If Needed)
- Secure a Location for Your Business
- Register Your Wholesale Business with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Wholesale Business
- Buy or Lease the Right Wholesale Business Equipment
- Develop Your Wholesale Business Marketing Materials
- Purchase and Setup the Software Needed to Run Your Wholesale Business
- Open for Business
1. Choose the Name for Your Wholesale Business
The first step to starting a wholesale business is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your wholesale business:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your wholesale business.
2. Develop Your Wholesale Business Plan
One of the most important steps in starting a wholesale business is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your wholesale business.
- Company Overview – this section tells the reader about the history of your wholesale business and what type of wholesaling business you operate. For example, are you a wholesale distributor, broker, or a jobber?
- Industry Analysis – here you will document key information about the wholesale industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract wholesale buyers to your business? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your wholesale business make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
3. Choose the Legal Structure for Your Wholesale Business
Next you need to choose a legal structure for your wholesale business and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the wholesale business and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a wholesale business together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its store owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a wholesale store include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a wholesale business is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your wholesale business, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
4. Secure Startup Funding for Your Wholesale Business (If Needed)
In developing your wholesale business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a wholesale business to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a wholesale business that they believe has high potential for growth.
5. Secure a Location for Your Business
There are a few things to consider when looking for a location for your wholesale business. First, think about what type of wholesale business you want to start. There are many different types of businesses, so it’s important to choose one that fits your skills and interests.
Once you’ve narrowed down the type of wholesale business you want to start, you can start thinking about specific locations. Do some research to find out what areas have a high concentration of businesses in your industry. You may also want to consider the cost of rent and other business expenses in different areas.
Another important factor to consider is the amount of traffic your business will receive. Think about how accessible your location is and how many people will pass by your business each day.
Once you’ve considered all of these factors, you can start looking for the perfect location for your wholesale business.
6. Register Your Wholesale Business with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
7. Open a Business Bank Account
It is important to establish a bank account in your wholesale business’ name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
8. Get a Business Credit Card
You should get a business credit card for your wholesale business to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
9. Get the Required Business Licenses and Permits
There are a few licenses and permits you will need to start a wholesale business. You will need a business license, a sellers permit, and a resale certificate. You may also need a zoning permit if your business is located in a restricted area. Make sure to check with your local government to find out what is required in your area.
10. Get Business Insurance for Your Wholesale Business
The type of insurance you need to operate a wholesale business will depend on the type of business you are running.
Some business insurance policies you should consider for your wholesale business include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Auto insurance: If a vehicle is used in your business, this type of insurance will cover if a vehicle is damaged or stolen.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
- Professional liability insurance: This protects your business against claims of professional negligence.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
11. Buy or Lease the Right Wholesale Business Equipment
To start a wholesale business, you’ll need to invest in some basic equipment. This may include a computer, phone, and printer for your office, as well as a vehicle for transporting your stock. You’ll also need to purchase or lease warehouse space, and you may want to invest in commercial-grade refrigeration or freezer units to store your stock if you will sell frozen goods. Finally, you’ll need to purchase or build the necessary display cases and shelves to showcase your products.
12. Develop Your Wholesale Business Marketing Materials
Marketing materials will be required to attract and retain customers to your wholesale business.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your wholesale business. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional wholesale business website provides potential customers with information about the products you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your wholesale business.
13. Purchase and Setup the Software Needed to Run Your Wholesale Business
To run a wholesale business, you need software that can help you with inventory management, as well as tracking orders and processing payments. You may also want to purchase customer relationship management (CRM) software to manage your customers. There are many different software options available, so you can choose the one that best meets your needs.
14. Open for Business
You are now ready to open your wholesale business. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start a Wholesale Business FAQs
Is it hard to start a wholesale business?
Starting a wholesale business can be difficult, but with the right planning and execution it can be a profitable venture. In order to be successful, you'll need to develop a strong business plan, build relationships with vendors and customers, and manage your inventory effectively.
How can I start a wholesale business with no experience?
The best way to start a wholesale business with no experience is to start small. You can offer your services to friends and family members or to local businesses. Once you have a few clients, you can start marketing your business more aggressively.
What type of wholesale business is most profitable?
The most profitable wholesale business type depends on the kind of products sold. For example, businesses that sell wholesale products like clothing or jewelry tend to be more profitable than those selling groceries because margins on clothing and jewelry are often higher than those on groceries.
Another factor that can affect profitability is the size of the business. A larger company is likely to be more profitable because it can buy products in higher quantities and thus get a discounted price.
How much does it cost to start a wholesale business?
To start a wholesale business, you need to invest in inventory and market your products. The cost of starting a wholesale business varies depending on the products you sell and the size of your operation. You may need to rent or purchase space for your business, hire employees, and purchase marketing materials. Overall, you can expect to spend anywhere from $5,000 to $50,000 to start a small wholesale business.
What are the ongoing expenses for a wholesale business?
One of the biggest expenses you'll incur when starting a wholesale business is inventory. You'll need to purchase products from suppliers and then sell them to retailers or other businesses. The cost of inventory can vary depending on the type of products you sell. For instance, jewelry inventory will likely cost more than grocery inventory.
Another big expense for selling wholesale products is marketing. You'll need to create a marketing strategy and invest in advertising in order to attract new retail customers. The cost of marketing can vary depending on the type of advertising you choose and the size of your budget.
In addition to the cost of inventory, there are other ongoing expenses you'll need to budget for when starting a wholesale business. These expenses include:
-Phone and internet service
-Shipping and delivery costs
-Credit card processing fees
-Employee wages and benefits
-Utilities, such as heat, water, and electricity
-Rental or lease payments for your business space
How does a wholesale business make money?
A wholesale business makes money by buying items from a wholesale supplier in bulk for a low price, then selling these items to customers for a higher retail price. This strategy allows the business to make a profit on the difference between what it pays for the items and what it charges customers. This is also known as the margin. To make a profit, the wholesale business must make enough sales to cover the cost of the items it buys and its overhead costs.
Another way a wholesale business can make money is by buying items in high demand and selling them at a higher price. This strategy allows the company to mark up the price, making a profit on the difference. This method can be riskier, as the demand for the item could go down and leave the business with excess inventory that it cannot sell.
Is owning a wholesale business profitable?
There are a number of reasons owning a wholesale business can be profitable. Here are some of the main reasons:
- There is less competition in the wholesale business than in other retail sectors.
- The barriers to entry into the wholesale industry are relatively low so you can set up a wholesale business relatively easily and cheaply.
- The cost of goods in the wholesale industry is generally lower than in other retail sectors.
- The demand for wholesale goods is usually stable, even during tough economic times.
- The wholesale market is constantly expanding, thanks to the growth of global trade and the rise of e-commerce.
Why do wholesale businesses fail?
One of the main reasons wholesale companies fail is because they do not have a good business model. A good business model is essential for any business to be successful, and this is especially true for a wholesale business. In order to create a successful business model, a wholesale business needs to focus on three key areas: customer needs, competitor analysis, and market analysis.
Other reasons wholesale businesses fail include:
- Not having a clear marketing strategy
- Not having a well-defined target market
- Focusing too much on wholesale pricing and not enough on quality or service
- Poor financial management
- Lack of innovation
- Failure to capitalize on opportunities
- Not understanding the industry or the market