Now that you’ve taken the plunge into the world of ecommerce, it’s important to understand the basic principles of accounting for your new venture and what makes it different from bookkeeping for other industries, even retail. Identifying these discrepancies is the first step toward better understanding your business’ financials and using that data to fuel growth.
That’s because keeping your books up to date is crucial to building a compliant, reliable, and financially stable business—and also key to accessing the performance insights you need to stay agile in the present and forecast for the future. With a tidy accounting process in place, you’ll see any issues arise ahead of time and be well-equipped to handle them.
So, what makes ecommerce accounting different? Let’s dig into the unique aspects of selling online and how they affect your books.
Sales Tax Data
How it’s different in the world of ecommerce: Ever-changing economic nexus laws require online sellers to report different sales tax rates in every state.
Sales tax tracking is a different process for ecommerce businesses than for their brick-and-mortar counterparts. Each state has its own rules regarding sales tax, and you’ll need to aggregate this data to accurately file taxes in the spring. Keeping your sales tax data organized at all times will prevent the pitfalls and penalties that inevitably come with incorrect information.
Part of a healthy accounting process includes understanding the economic nexus laws put into place to regulate the collection of sales tax as more businesses branch into ecommerce. These rules are subject to constant change, so sellers and their chosen accounting professionals should collaborate closely to monitor and act upon any updates. A successful seller’s secret weapon? Ecommerce accounting automation software that posts transaction details (including sales tax information) directly to QuickBooks, Xero, or NetSuite.
How it’s different in the world of ecommerce: Inventory is sold on multiple channels and moves quickly, making it harder to track and stay up-to-date with quantity and location.
Ecommerce businesses often sell on multiple channels, from marketplaces like Amazon to their own websites using a shopping cart platform like Shopify. But no matter where you sell, you need real-time insights on how much product is on hand, where it’s stored (in physical locations, on hold for customers, in various online carts, or in the returns process), and how much each unit is worth. Why? Because these are all essential pieces of information to accurately project your cash flow.
One inventory problem that sellers frequently run into is the slippery slope of overselling versus overstocking. Overselling a product that you don’t have in stock can lead to production and shipping delays and poor customer experiences with your business. On the other hand, overstocking a product can result in higher business overhead. Profits are always lost when your product is gathering dust in a storage facility.
To avoid these potential issues, find an inventory management program that works best for you, one that will tell you exactly where to find each product and how they’re moving in and out of your inventory. Doing so will maximize profits and a positive customer experience for your growing business.
How it’s different in the world of ecommerce: Online sellers aren’t limited to storefronts and can sell from anywhere, leading to higher transaction volume than their brick-and-mortar peers.
Online retailers have limitless potential for moving products and services because they don’t operate out of locations relying on foot traffic. They can sell on multiple channels, and dropshippers (sellers whose vendors directly fulfill customer orders) don’t even have to handle their own inventory. As a result, these businesses often see larger transaction volumes.
The only problem? There isn’t a dedicated accounting solution built for ecommerce sellers and accountants. And the manual data entry of countless transactions quickly becomes overwhelming during high growth periods. That’s why sellers turn to ecommerce accounting automation to import sales data from their channels and provide financial visibility.
How it’s different in the world of ecommerce: Transactions are more complicated, and net payouts don’t reflect sellers’ true costs.
For traditional retailers, it’s simple to track income via standard bank statements, but things get a little more complicated with ecommerce businesses. Marketplaces and shopping carts make net deposits at the end of each “pay period,” but don’t include crucial information like taxes, fees, and other expenses. This forces your accounting professional to delve into the back end of these platforms to find individualized data points and properly understand how they’re impacting your business’ actual cash flow. You never want to over- or underestimate your business’ financial health based on bare bones reporting capabilities of other software programs.
Therefore, you need transaction-level reporting, taking the guesswork out of accurately understanding your business’ financial health. Exact data is the only way to anticipate any problems and even make decisions that can grow your business long-term.
TakeYour Ecommerce Accounting by the Reins
Having even a basic understanding of ecommerce’s unique financial principles will set your business leaps and bounds ahead in an increasingly competitive marketplace. You’ll have all the information and data needed to stay on top of sales tax laws, keep track of your inventory, and manage your sales volume across platforms.
Let’s face it: Running an ecommerce business can be turbulent enough without getting bogged down in the morass of ecommerce accounting. But don’t worry! A little know-how, the help of technology, and trained ecommerce accounting professionals can help smooth the ride.