As we step into another promising year, it’s crucial for ecommerce entrepreneurs to recalibrate their financial strategies. For many, the immediate instinct is to focus on minimizing tax liabilities. However, as experts in ecommerce accounting, we urge you to look beyond just taxes and consider a more holistic approach to financial management using the priorities below.
1. Establish a Strong Core Profit Engine: Assessing Business Viability
A robust core profit engine is at the foundation of any successful ecommerce business. This isn’t just about having a business; it’s about having a profitable one. Your Post Advertising Gross Profit (PAG) is an essential metric to consider. Does your catalog or individual SKUs generate at least a 20% PAG? This figure indicates true profitability after accounting for advertising, marketplace fees, and the cost of goods sold (COGS). If you need to hit this benchmark, your priority should be to enhance your profit margins. This may involve optimizing your advertising strategies, revising pricing, or negotiating better supplier terms. Don’t move on to the other priorities until you’ve figured this out.
2. Crafting an End Game Plan: Defining What You Want
Every business journey should have a destination. What is your end game? Are you preparing for an exit, or do you plan to raise capital to expand? This is where strategic visioning comes into play. A clear three-year vision can be developed using tools like the Vision/Traction Organizer (VTO) from the book “Traction” by Gino Wickman. This approach, part of the Entrepreneurial Operating System (EOS), helps set clear goals and define the path to achieving them. Having a well-defined end-game plan is crucial, whether it’s an exit strategy or scaling up for further growth.
3. Developing a Tactical Financial Plan: Mapping the Route
Knowing what you want is one thing, but understanding how to get there is another. This stage involves meticulous financial planning. It encompasses everything from cash flow management to strategic decisions like product launches, setting growth rates, and managing overhead.
Key questions to address include:
How many new products or brands will you need to launch to reach the goals determined in priority two above?
- For example, if you want to expand your business, you may need to launch five new products in the next year.
What’s an acceptable growth rate that balances ambition with financial prudence?
- For instance, aiming for a 20% growth rate per year may be a good balance.
How much debt is safe to take on?
- It’s essential to consider factors such as interest rates and your ability to make repayments.
Your tactical financial plan should be a detailed roadmap that guides you from your current financial status to your desired financial future.
4. Implementing a Strategic Tax Plan: Maximizing Profit Retention
With a solid business, clear goals, and a tactical plan in place, now it’s time to think about taxes. The goal here is not just to comply with tax laws but to strategize to maximize profit retention. This involves understanding the nuances of tax laws and leveraging them to your advantage. It’s about intelligent tax planning that aligns with your business strategy, whether deferring taxes, taking advantage of deductions, or optimizing your business structure for tax efficiency.
Securing Your Ecommerce Future: The Path to Financial Excellence
Navigating the financial aspects of an ecommerce business requires more than just a focus on sales and taxes. It demands a deep understanding of your business’ profitability, a clear vision for the future, a detailed plan for getting there, and a strategic approach to tax planning. As experts in ecommerce accounting, our firm is dedicated to guiding you through these steps, ensuring your business is surviving and thriving.
Ready to elevate your ecommerce business with expert financial guidance? Contact us to start building your business’ stronger, more profitable future today.