Preparing your finances

When you start a dropshipping business, you should keep your personal and business finances separate. This helps make accounting easier and helps you adhere to local tax regulations.

Setting up certain business accounts, understanding your local business and tax laws, and choosing a bookkeeping method are all important things that you should investigate.

Set up business accounts

Each regional government requires different accounts that businesses should set up. For example, the following accounts are often required for new businesses:

  • A business bank account - It is common in most areas of the world to have all business revenue and expenses handled by one business account. Starting a bank account for your business keeps your finances easy to manage and keep track of.

  • Local payment method business accounts - If you plan to accept payments through a local payment method, such as Sofort in Germany or iDeal in the Netherlands, then check what requirements the payment method has for business accounts. Signing up for local payment options helps secure trust in your brand by accepting payment methods that your customers are familiar with.

    Visit the payment providers page to see the methods that are available for you to accept payments in your region.

  • International payment method business account - If you plan to accept payments through an international payment method such as PayPal, then you likely need a business account with that payment method to connect it with Shopify.

    Visit our payment gateways page to see which gateways are available in your region.

  • Business credit card - You might need to spend larger sums of money than you’re used to when meeting the minimum order quantities of your suppliers. It helps to have a business credit card connected to your business bank account to use for these types of purchases, and to keep your expenses in one place.

  • Business savings account - If you contribute regularly to a savings account for your business, then you can be more prepared for any unexpected costs that your business incurs.

    For example, you might find a new supplier that has a new product that you want to sell, but the supplier has much higher minimum order costs than you are used to. If you have some money saved for the business, then you're able to pay these higher costs.

Research tax considerations

Contact your local government and business bureau to discover what tax laws apply to dropshipping businesses in your area. Dropshipping is a unique business type because much of the business is run online.

Investigate the following to make sure you have a good understanding of what is expected of your dropshipping business:

  • Which business registration numbers you need to get - Most regions of the world require a business to file for some form of business identification. For example, most businesses in the United States need an employer identification number (EIN) to file taxes or open a bank account for their business.

    If you get all the business documents that you need to run your business as early as possible, then you are better prepared to work with suppliers, respond to audits, and adhere to tax laws.

  • Which scenarios you need to collect and remit tax in - Some regions don't require businesses to collect or remit tax until they reach a certain amount of revenue within a specific amount of time. Other regions expect tax to be collected on each transaction, but only if your customer is in the same region.

    If you are aware of what is expected of your business at each stage of its development, then you can be prepared and collect the correct amount of tax when you need to.

  • What you can deduct from your income - Some regions give business tax breaks to different levels of business. If you run your business from a home office, then you might be able to deduct certain items used to run your business from your home, such as your laptop, internet, or office furniture.

    Being aware of what you can deduct from your income helps you pay the appropriate taxes and keeps you in line with local tax laws.

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