For more in-depth information on this topic, check out the original post here.
If you’re new to the e-commerce space, you might be wondering whether you can just do your accounting on your own. But even if you’ve got experience running a business, you might find that e-commerce sales are more complex than you might expect, and the resulting accounting is just as complicated.
When you’re selling out of a physical store or even a few stores in different states, it’s generally easy to tell which states you’ll owe sales tax to come April.
But e-commerce sales handle tax differently, which makes your bookkeeping a bigger challenge overall. You can read more about sales tax in e-commerce here.
The e-commerce sector deals with a notoriously long cash cycle, meaning it takes longer than other types of sales businesses for owners to see a return on their investment.
E-commerce sellers need to juggle paying their suppliers, having cash on hand to run the business, and keeping inventory in stock, all while waiting until their products have shipped in order to record their sales and (hopefully) net a profit.
E-commerce accounting also relies on accrual-based bookkeeping instead of a cash basis. These sellers aren’t so lucky as to be able to dump every transaction into an expense account as soon as it hits the bank, so their accounting tends to be more sophisticated than a traditional business.
Amazon fees make up a huge percentage of most of our clients’ expenses, meaning that profit margins are smaller and leave less room for error in the business. And since Amazon is such an important partner for so many businesses, the fees they charge are fairly inescapable.
Clean books are a non-negotiable when it comes to making clear and informed CFO-level decisions, so it’s important that your e-commerce accounting isn’t done halfway. You really need investor-grade accrual bookkeeping in order to get the data you need.
The biggest difference between a brick and mortar business and an e-commerce one is sales volume. While a physical store is limited by how many customers walk through the door on any given day and how many salespeople are on the floor, e-commerce brands have no such restrictions.
A successful seven-figure e-commerce business likely has thousands of transactions per month, and unlike a standard sales brand, it would overwhelm your accounting software to throw in every transaction as it happens. It takes a specialized firm to understand how to get the necessary data from those transactions without crashing the system every time they open a spreadsheet.
Refunds and Returns
The final accounting headache most e-commerce sellers encounter is dealing with returns and refunds. There are extraneous fees to deal with, products to be either re-shelved or destroyed, and possible issues with mislabelling from Amazon’s FBA service, all of which muck up the accounting process.
It’s not always possible to tell at a glance how to expense the costs associated with returns, which makes for a complicated bookkeeping situation.
If you’re ready to outsource your e-commerce accounting, get in touch and schedule a free 15-minute discovery call today!
To learn more about this topic, check out our previous post on 5 Reasons E-Commerce Accounting is Challenging.