When you launched your ecommerce business, you probably had your mind on making sales, not on keeping your books. It’s easy to see why. Online retailers face unique challenges, from perplexing sales tax laws to inventory management headaches, and more. Outsourcing your bookkeeping is expensive, but a growing business rarely has the capacity to handle it in-house.
Multiple studies have shown that entrepreneurs find accounting and finance to be “draining” and “one of the worst” aspects of running their operations, and this lack of enthusiasm can cause problems down the road. Bookkeeping errors quite literally cost you—in tangible ways like noncompliance fines and supply chain mishaps, but also in wasted time spent getting your books back in order.
Let’s take a closer look at how these errors and inefficiencies impact online businesses and what you can do to stop the train before it wrecks.
Pain Point: New Laws Create Sales Tax Snares
When the Supreme Court ruled on Wayfair, Inc. vs South Dakota in 2018, the ecommerce sales tax landscape changed forever. Online retailers are now required to remit sales taxes in every state where they have “nexus,” or presence. Physical locations like offices and warehouses establish nexus, but so do online sales. Most states now have revenue or volume thresholds that, when sellers exceed them, also create nexus.
Understanding nexus is the key component of grasping the unique sales tax concerns ecommerce businesses face. Online retailers now have to keep up with the tax laws in every state, plus the District of Columbia and territories like American Samoa and Puerto Rico. The ruling also set in motion conversations about gross receipts tax, income tax, consumer protection, consumer privacy, and other issues. In short, sales taxes got a lot more complicated, meaning there’s a greater risk of businesses being noncompliant.
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That’s why we recommend keeping up-to-date on your taxes all year long. It’s a lot like visiting the dentist—if you brush your teeth and floss every day, your visit will go a lot more smoothly than if you tried to do it all the week of your appointment. Our favorite tips? Here’s a list, or get the details in our year-round tax maintenance tips blog.
- Educate yourself about sales tax laws
- Capture and review sales tax data
- Work with accounting professionals
- Review and update annually
Solution: Technology + Accounting Expertise Save the Day
Technology makes it easier to sell your products, and it can be equally useful for your accounting processes. Specifically, an ecommerce accounting automation program records tax information for you and sorts it by jurisdiction, while tax-focused solutions like Avalara streamline the tracking process. But even the most organized online retailers can get overwhelmed, which is why we recommend phoning a friend—or rather, an accounting professional.
Veronica Wasek, CPA, said in our sales tax webinar:
“Ultimately accounting professionals are on the front lines for clients and need to be able to see when there is risk. They need to then bring someone into this financial team for the client who can handle the sales taxes.”
There are plenty of accounting pros who specialize in ecommerce sales taxes, so ultimately sellers just need to find the right person to work with. Pair that expertise with accounting technology, and your books will be clear in no time.
Pain Point: Inventory Problems Are Cash Flow Killers
Inventory management is tricky for any product-based business, but for online retailers, it’s one of the top operational challenges and the number-one reason why many ecommerce operations fail. This is because sellers often lose track of what they have, what it’s worth, and where it’s located. For multichannel and omnichannel retailers, it’s especially complicated because each new sales channel adds a new layer of complexity.
The problem here? Inventory is the backbone of your business’ cash flow, so you need to keep tabs on every product you sell or else risk incurring some serious bookkeeping errors. Additionally, mismanaged inventory leads to overselling and overstocking, two problems that can drastically damage your cash flow. Here’s why: Overselling creates a poor customer experience, and overstocking creates a money pit of warehouse storage fees. Ecommerce is a thin-margin industry, so chances are your business can’t afford these mistakes.
Solution: Automated Data Sync Streamlines Processes
Managing inventory looks like a fairly complex process from the outside, but the solution is fairly simple: data sync. If all your information is up to date across all your sales channels and your accounting system, you’ll have an easier time managing sales and returns.
For example, sporting goods retailer Bases Loaded was experiencing the struggles of managing inventory as the business expanded into the online market. The team needed a solution that would sync data between their online store, brick-and-mortar location, and QuickBooks. And when they found the perfect tool that met their needs, they increased revenue by 1.8x.
If you’re not taking proactive measures to keep your books up-to-date and accurate, you’re at risk for slow sales, tax penalties, and wasted time. But we’re here to help. Overcome your ecommerce accounting challenges today with tips from our free guide.
