The following is a guest post from David Bakke, who runs an online reselling business he initially discovered by selling his old college textbooks. Additionally, David writes about his thoughts and insights into small business, money management, frugal hacks on Money Crashers Personal Finance.

For some, the phrase “start your own business” conjures thoughts of losing life savings, filing for bankruptcy, and other such financial horrors. However, those same people have probably sold things on Craigslist, eBay, or Amazon – or at least had a successful garage sale. These examples are, in essence, the same tasks involved with being a self-employed reseller, albeit on a smaller scale.

To start your own Internet reselling business, all you need are a few quick tips to get started. The stories you may have heard of earning million dollar salaries in your first year are likely fairy tales, but if you use common sense and run your business intelligently, there’s no reason why you can’t generate solid profits by selling items online.

1. Start Slow – Start slowly, especially if you’re new to selling on eBay, Amazon, or another site. Although the accounts are easy to set up, you need to be aware of several things.

   First, Amazon allows you to choose your shipping options. These options include standard, expedited, two-day, and more. With eBay, on the other hand, you simply list how and when the item will be shipped. Also, when you start selling on Amazon, there is usually a two-week lag before you receive money for sold items. With eBay, you get the money shortly after the buyer pays. There are other nuances you’ll want to get accustomed to regarding either site before you dive in head first. For more, check out these tips for selling on eBay on Money Crashers.

2. Know Your Business – If you think you can make money selling laptop computers, but don’t have any real understanding of computers, you’re likely to fail. In other words, stick with what you know. Whether that’s video game systems, small electronics, or sports memorabilia, having solid product knowledge will help you immensely in the way of pricing and purchasing.
3. Prioritize Customer Service – As an online seller, setting yourself apart from the competition can be difficult. To do so, you must offer three things: low prices, fast shipping, and great customer support.

   In the beginning, consider sacrificing profit by undercutting your competition. This will let you quickly turn inventory and acquire positive feedback. When someone inquires about an item, answer them quickly and address all their concerns. Nothing is more irritating than having a question go unanswered by a seller. And whether you use the post office, UPS, or FedEx, use online calculators to identify the best shipping option. You’ll need to invest in a cheap postal scale in order to do this. Often, you can get an item to its destination more quickly by spending just a dollar or two more.

4. Expand as You Succeed – All the profits you make early on could be extra income – but your best bet is to reinvest the money in your business to expand future profits. Any good business needs have a plan going in. Know what you want to offer your customers, and how extensive you want your offerings to be. Once you’re fully up and running, you can then take the profits to use in other areas of your life.
5. Know When to Command a Higher Price – My strategy in the beginning was to sell cheap and fast and move on. After I built a strong feedback rating, however, I realized I did not have to list my items as the cheapest. Often, I had a great deal of success by listing my item as the fifth or sixth cheapest. Customers pay attention to feedback ratings, and if yours is stellar, they’ll pay more to buy from you.
6. Save Money – I launched my reselling business with nothing more than a roll of mailing tape, and I packaged my items with paper bags from the grocery store. For return address labels, I found a promotional deal online to receive 250 for free. And when I resold items I purchased online, I shipped them in the exact packaging in which they arrived. These cost-saving strategies allowed me to keep going through lean times until my business began to really take off.
7. Find Deals – You’ll have to develop your own approach and niche, but here are a few general tips to find deeply discounted items to resell. You’ll of course want to make sure that you’re getting the best products for your money. Do your research – for example, check the list of best budget laptops to get reviews and opinions from others.

   First, sign up for daily deal websites, and put Woot and FatWallet at the top of your list. Scour their deals and compare selling prices to what the same items recently sold for on eBay (or what they’re currently selling for on Amazon). From there, decide whether or not to pull the trigger. Just be sure to factor in fees and estimated shipping costs. If the price is really cheap and resale prospects look good, purchase more than one item.

   Also, visit local brick-and-mortar retailers – their clearance deals are typically unannounced, and you’ll never know what you might find. Don’t forget that clearance items are discounted for a reason: The store needs to get rid of them! Therefore, it never hurts to ask if they’ll accept less than the advertised price.

Final Thoughts
While Internet reselling is a great way to make extra money, make sure you fully understand the tax implications. Recent legislation requires that anyone with more than 200 transactions or more than $20,000 in gross sales per year will have these sales reported to the IRS via the 1099-K form. While the IRS won’t know your exact profits, they will know how much you sold. So by all means, implement an accurate accounting system, and report your income. The last thing you want is the IRS knocking at your door.

Have you ever dabbled in an online reselling business? What are your tips for success?