5 Reasons Why You Should Outsource Your E-commerce Accounting
eCommerce business is the new business model favorite. It seems like everyone is doing it or about to do it. If you’re considering entering the eCommerce space, don’t underestimate the accounting needed to keep your eCommerce business running. Even if you’ve already had years of experience with traditional business models, you might be surprised to find out the level of complexity of the accounting needed for eCommerce. It’s easy to assume that you can DYI your eCommerce accounting. But it’s a little more complex than that.
Figuring out Sales Tax
Right off the bat, this is the biggest chunk of concern you need to face. With the recent Supreme Court ruling concerning economic nexus, rules and regulations surrounding them are in flux, constantly evolving. You need a good accountant to help you navigate these changes.
Part of figuring out where you need to collect and remit sales tax will be how to collect them and each State has different rules you need to apply. You should definitely not attempt to DYI this part. Acquiring the help of an accountant to fix your Sales tax will help you avoid future stress and also assure your customers that they are paying the right price. Moreover, an accountant can help set up this feature for your books and even in the online platform you operate in.
Another problem with the eCommerce business is that you need to deal with extended cash cycles. This means it will take a long time for you to see a return on your investment.
Your Cash Flow Game needs to be on the next level. You need to survive paying your suppliers, keeping inventory and cash on hand, while waiting for your product to ship, and reach your customer before recording a sale. So you see, you need god-tier planning expertise to ensure you don’t run out of inventory in the middle of all that waiting around.
The more applicable accounting method to use on eCommerce is also the accrual basis, which means eCommerce accounting don’t get to dump all cash outflow into one expense account and call it a day. Transaction categorization tends to be a little more intricate.
There is one name you inevitably encounter in the eCommerce business, that is, Amazon. It holds the biggest share in the market and most sellers find themselves working with this platform. Along with this business relationship, is the inevitable Amazon Fees that will make up a huge chunk of your client’s expenses. eCommerce business owners usually don’t have physical stores, utilities, rent… but they have Amazon Fees and it’s practically the same thing.
These fees tend to eat up your profit margins so creating a no-nonsense accounting is a must. You have little room for error, you need class-a bookkeeping.
Insane Transaction Volume
Another accounting dilemma unique to eCommerce is the insane transaction volume even when you are considered a small business. While traditional stores are usually limited by the in-store capacity or by logistics when it comes to transaction volume, eCommerce is not.
The typical successful eCommerce business has thousands of transactions per month, unlike traditional stores, you are not held back by supply logistics. If you have it in your warehouse you can ship it directly to your customer. This creates a transaction volume that is off the roof and could easily overwhelm your accounting system. You need an expert with specialized fields to organize your data and separate necessary data without crashing your system.
Dealing with Refunds and Returns
Ahhh, refunds and returns. You could argue that all businesses have them. But this one is particularly problematic in eCommerce with regard to the huge transactional volume we talked about earlier. Refunds and returns are just as voluminous. There are extra fees, products that could potentially be disposed of without profit, and issues with mislabelling from Amazon’s FBA service. All of these issues clog up your accounting system and are something you should not ignore until the mess becomes too unbearable.
Going on a venture
All great ventures need an expert guide, we might not be Gandalf, but we sure know our way around eCommerce accounting. If you are still having doubts about how to handle your eCommerce business or even when you haven’t fully decided to enter the scene, you can reach out to us and we can give meaningful conversations about you and your business.