Introduction to E-commerce for Small and Home-based Business Michael Wilcox Assistant Professor Department of Agricultural Economics University of Tennessee p: 865-974-3344 f: 865-974-0440 e:email@example.com h:http://trend.ag.utk.edu/entrepreneurship
By RANDALL STROSS Published: January 13, 2008 Get Rich Quick? “MARKUS FRIND, a 29-year-old Web entrepreneur, has developed software for his online dating site, Plenty of Fish, that operates almost completely on autopilot, leaving Mr. Frind plenty of free time. On average, he puts in about a 10-hour workweek. For anyone inclined to daydream about a Web business that would all but run itself, two other details may be of interest: Mr. Frind operates the business out of his apartment in Vancouver, British Columbia, and he says he has net profits of about $10 million a year.” http://www.nytimes.com/2008/01/13/business/13digi.html?ex=1200978000&en=0b6cc3ab4da6a22b&ei=5070&emc=eta1
When starting a home-based E-business you should consider: • An Assessment of Your Attributes and the Skills Needed to be Successful • Mapping Out Your Assets • Weighing Advantages and Disadvantages • Carefully Choosing a Type of Business • Always Avoiding Scams!
Internet Usage • 70% of adult Americans use the internet • #1 use is email (91% of users) • 78% use internet to research a product or service before buying it • 71% purchase products over the internet
Actually it is… Source: http://www.pewinternet.org/trends.asp
E-commerce Defined (1) Electronic Commerce (e-Commerce) as defined by the U.S. Census Bureau. Any transaction completed over a computer-mediated network that transfers ownership of, or rights to use, goods or services. The value of goods and services sold on-line. The term “on-line” includes the use of the Internet, Intranet, and Extranet, as well as proprietary information that runs over systems such as Electronic Data Interchanges (EDI) networks. (2) Electronic business supporting infrastructure The economic infrastructure that is used to support electronic business processes and conduct electronic commerce transactions. It includes hardware, software, telecommunication networks, support services, and human capital used in electronic business and commerce. (3) Electronic business processes Processes that a business organization conducts over a computer-mediated network. Business organizations include any for-profit, governmental, or nonprofit entity. Examples of on-line e-business processes include the following: * Purchasing * Selling * Vendor-managed inventory * Production management * Logistics * Communication and Support Services such as on-line training and recruiting
Using the Internet • In general, Americans have embraced the internet as an informational tool. Now it is gaining popularity as a means of commerce. • B2B has played an important role in the adoption of e-commerce. • “Businesses in virtually every sector of the economy are beginning to use the Internet to cut the cost of purchasing, manage supplier relationships, streamline logistics and inventory, plan production, and reach new and existing customers more effectively.” (https://www.esa.doc.gov/reports/EDE2report.pdf ) • Direct marketing through the internet now being embraced by many types of small and home-based business.
Why the Internet? • Many small and home-based businesses are situated in micropolitan and rural areas… …while consumers live primarily in metropolitan and micropolitan areas • Internet offers access to wider customer base • Upper income brackets well represented • Globalization has broadened consumer’s tastes and preferences
Common Rural E-commerce • Food Processing • Fabric Crafts • Carpentry and Wood Working • Visual Arts • Music • Book Publishing For the Artisans in the crowd: < http://srdc.msstate.edu/ecommerce/grants/texas/index.html >
Basic Business Plan • Provide a product or service that meets the needs or wants of customer base • Provide superior customer service in the form of technical assistance, product information, etc. • Develop a relationship with the customer • For an excellent treatment of this topic: <http://srdc.msstate.edu/ecommerce/grants/iowastate/index.html> • Strive for satisfied customers and repeat business rather than only new customers
WARNING! • Home-based businesses poses some challenges… • Perishability and bulkiness of agricultural products • Packaging and shipping may be a constraint to success due to high costs • Lack of connectedness to source of product • Laws may restrict market (fresh fruit, wine,…) • Competition with bricks-n-mortar outlets • Seasonality • Supply constraints
Your Approach and Objectives • Approach • Advertising • Informational • Sales • All of the above • Objectives • Save time, labor, money, materials… • Increase market potential • Promote business, region, product • Shorten marketing chain
Options • Email • Newsletters, promotions, etc. • Directories • Pick Tennessee Products • Website • Advertising, information, order forms • On-line Store • DIY or choose provider
Tools of the Trade • High-speed internet access • E-Mail address(es) • Domain Name – yourcompany.com • Host for website • Shopping cart and payment system • Content / Design / Security • Marketing of site • Arrangements for warehousing and shipping • Filings for reg’s, taxes, etc.
Who is Running Your E-Biz? • Need to consider whether you are going to outsource most e-activities or complete these tasks yourself • Up-dating and adding content, fixing broken links, answering email, filling orders, marketing site, staying current with…. • Technology • Product Mix • Pricing • Marketing Message
E-commerce & Small Business • Shortage of technical skills can be overcome by savvy outsourcing of services • Web design • Hosting • Maintenance • Content Development and Management • E-Commerce requires continual investment of time and dollars -it is an evolutionary process that integrates well with continuous business strategic thinking and planning Source: Barkley & Lamie, 2007
To fill or not to fill Source: http://www.ams.usda.gov/directmarketing/internetmarketingf.pdf
Death and Taxes… • In general, your business – online or not – is subject to the same small business / self-employment taxes… • Small Business and Self-Employed One-Stop Resource (http://www.irs.gov/businesses/small/index.html) • Information for on-line auction sellers (http://www.irs.gov/businesses/small/industries/article/0,,id=163622,00.html ) • Profits from e-commerce sales are subject to taxes • Federal, State, and Local income taxes • Self-employment taxes • Portion of e-commerce revenues should be set aside in a bank account • Forms to become familiar with • IRS Form 1040 Schedule C • IRS Schedule SE • State income tax form (state-dependent) (Marshall, et. al. , 2007)
Still More on Taxes… • Are sales made on the Internet subject to sales or use tax? • Yes. Even if a seller does not collect Tennessee sales tax from you, when you ask a dealer to deliver an item to you in Tennessee, you are responsible for paying use tax at the same rate as sales tax. • Why does a catalog company or an online seller located in another state charge Tennessee sales or use tax? • If an out-of-state business has a physical presence in Tennessee (a business, warehouse, sales representative or agency relationship), then that business is required to collect sales or use tax on merchandise delivered to a Tennessee customer. If the out-of-state business does not have nexus in Tennessee, the business is not required to collect Tennessee taxes. • Should a Tennessee dealer selling merchandise through the Internet collect sales tax? • When a Tennessee dealer accepts an order through the Internet and delivers a product to a Tennessee customer, the charge is subject to sales or use tax. If the Tennessee dealer delivers a product to a consumer located in another state, the sale is not subject to Tennessee sales or use tax.
And…more…. • Abusive tax schemes ( http://www.irs.gov/businesses/small/article/0,,id=106515,00.html ) • These schemes are “abusive” because they manipulate and misinterpret tax laws. • The public should not be fooled by home-based business schemes that claim taxpayers can deduct most, or all, of their personal expenses as business expenses. • Taxpayers should be wary of promoters who claim otherwise. • Participating in these schemes can result in repayment of taxes owed with interest and penalties, and possibly imprisonment and fines.