Ecommerce Accounting’s Pitfalls and Obstacles
ECommerce enthralls entrepreneurs because of its low barrier to entry and perceived simplicity.
Promoting items that are already well-liked on sites like Amazon and eBay appears to be simple. The issue of operating an online business is a point of debate.
Online merchants and their accountants share the pains of eCommerce accounting.
Here are the top 5 problems that small eCommerce companies confront and how to overcome them.
1. Sales Tax
Ecommerce sales tax has become more difficult in recent years. The most significant change occurred following the Supreme Court’s decision in the Wayfair vs. South Dakota case 2018.
Most online retailers must now pay taxes in nearly every nation where they make a purchase due to recent international tax regulations.
Implementing new economic nexus laws has resulted in revenue and sales volume criteria.
The IRS maintains these records to determine when a company must pay taxes.
Previously, you were solely responsible for collecting sales tax where your company’s physical location is.
In the sales tax walkthrough, we’ll review everything you need about an economic nexus.
Tax locations in brick-and-mortar retail may be few. Online vendors now require thousands of tax identifiers.
Furthermore, sellers are required to submit taxes regularly, usually monthly or quarterly.
There are several tax-related software systems on the market, like Quickbooks.
Keep accurate accounting of every transaction so there’s less uncertainty when it’ssubmitting your taxes.
2. Inventory Management
For small businesses, keeping track of inventory is a difficult job. New goods and sales channels add to the problem.
If you have more than one warehouse or fulfillment center, you’ll need to calculate and keep track of what you’ve got, its value, and where it’s housed.
Every transaction modifies the overall inventory quantity. Inventory is also affected when returns return to the warehouse in good condition.
Inventory management is a pain, even if not linked to accounting. It’s the cash flow spine of every online endeavor; therefore, keeping tight control of it is essential.
The most common ways of running a business are automated and integrated inventory management systems that may be expanded.
Systems that use varying levels of verification will be able to provide the most up-to-date financials.
The most popular ecommerce platforms charge a fixed monthly fee to use their platform. Other hidden costs are more difficult to keep track of.
This is an excellent illustration of how Amazon’s pricing model works. Costs are associated with the listing, transactions, advertising, and order delivery.
The fee is determined by the product’s category, size, and weight for shipment and the distance between you and the vendor.
At the end of the month, these expenses are recorded together as “Amazon fees,” giving sellers zero granularity.
If you have an agent, you’re lucky: lacking knowledge makes budget planning much more challenging—our blog article’lwe’lliew what goes into a seller fee.
But what if you’you’reling items on e-commerce platforms other than Amazon? You could do it manually, depending on their pricing models.
When your organization expands, automation is more sustainable since you won’won’te to perform as much busy work.
3. Handling Returns
One of the drawbacks of eCommerce is that returns are difficult to track.
Most businesses let their customers return items that do not fit, are damaged, or are ineffective.
According to studies, having a generous returns policy may increase brand loyalty and lead to reconversions.
AcceIt’sg returns as a business in business are in your online business interests. Returns, on the other hand, complicate the accounting process.
Customers are given a refund, and the returned item(s) may need to be reinstated to the inventory.
The greatest way to deal with returns is to pay close attention to the details.
Sellers must decide whether or not to write off inventory in order not to double-expense it and disrupt their accounting.
Many inventory management systems include the feature of managing returns. You can also manually update your accounting software to track returns.
4. Manual Data Entry
Every transaction must be recorded in detail, including the following:
- Local sales taxes.
- Seller costs.
- Item numbers sold.
- Shipping expenses, and more.
When your company grows, manually keeping track of all of this information gets more difficult.
Some businesses employ accountants to do so, but you may be shocked by the expense.
Manual data entry is a major pain since it is time-consuming and prone to errors.
Automation can assist online retailers with this issue by taking over the job.
Accounting automation software like Xero can connect eCommerce stores to your accounting solution by posting all transactions.
5. Data Analytics
Certain eCommerce platforms are more advanced than others regarding analytics and reporting.
This is a problem for sellers who don’t have easy access to store performance domestics.
Customers would not be told what was happening, reacting to things that had already happened.
You may become proactive based on current data and performance history when you have good reporting.
To be proactive, you must have a deeper understanding of your accounting. With a real-time store performance tracker, you can track how quickly products go through the system and which channels produce the most money.
There are dozens of solutions on the market, and you can use them to make data-backed decisions about which moves to make next.
What Should You Do if you are Overwhelmed? (Which is not your fault)
As your company grows larger, the issues you face become increasingly complicated.
When you reach this stage, you must hand over control to the specialists so they can assist you in growing your online business while keeping your focus on your business growth only.
Here at Free cash flow help online businesses (like yours) boost their revenue and do what other firms miss.
I know you’re anxious about not receiving as much ayou’rehad hoped, but believe me when I tell you that we exceed your expectations.