The previous years only showed us that ecommerce is booming and continuing to be popular with entrepreneurs. Platforms like Amazon and Shopify have proven lucrative avenues for establishing online stores and generating revenue. But amidst the thriving landscape, it is crucial not to overlook the critical aspect of accounting for an ecommerce business.
Along with the flow of money, accounting is essential in keeping your store running. Unfortunately, this area can present a serious problem, especially for those new to the industry. We understand the intricacies first-timers face, so we’re here to help!
This blog addresses these common challenges head-on and equips you with tips and tricks to conquer them confidently.
Accounting is the backbone of ecommerce financial management. Without it, companies would struggle to make informed decisions, track their financial health, and comply with regulatory requirements.
Unfortunately, ecommerce business owners often have many daily responsibilities to handle. Their time and energy are often spread thin, from shipping logistics to customer service. Constantly juggling tasks can make it difficult to dedicate the mental focus and attention required for accurate accounting.
The round-the-clock nature of ecommerce operations also means that enterprises are persistently on the move. Such activity can lead to fatigue and mental exhaustion, making it harder to perform complex accounting tasks. Errors and inaccuracies can occur, potentially affecting financial records and decision-making.
Given that the road is not always smooth in ecommerce accounting, it is important to be proactive in identifying and addressing certain problems you might face. Done properly, you might figure out what could be done to optimize your efficiency and maintain stability.
Below are eight of these challenges you may face:
Inventory management is a tough endeavor for both large and small enterprises in many ways:
|5 Challenges of Inventory Management|
|Product Listings||A rough estimate of the number of items is essential for accurate product listings.|
|Tracking Goods Across Warehouse||Regular inventory checks, real-time tracking systems, and effective warehouse communication are essential to maintain inventory accuracy and meet customer demand.|
|Dealing With Delivery Delays||Delayed shipments can impact order fulfillment, stock levels, and customer satisfaction.|
|Surplus Stock Management||Holding excess inventory ties up valuable resources and affects cash flow.|
|Managing Demand Fluctuations||Businesses must implement dynamic pricing strategies, pre-order systems, or leverage real-time sales data to make informed inventory replenishment decisions.|
As you can see, inventory management requires vigilance. It’s impossible to deliver all these tasks on your own without the right tools, techniques, and support.
Sales tax is a part of the ecommerce accounting system that often instills a sense of dread among small business owners. But you can’t run from it forever. Everyone needs to comply with sales taxes. You must understand how tax collection is done and pay proper tax collection agencies the correct amounts.
Sadly, many things could go wrong if you don’t know how to handle sales taxes. It can be any of the following:
One way or another, you will have to handle refunds and returns. These returns can pose challenges to your accounting. Here’s why:
Refunds can also disrupt your cash flow. Here’s a brief example:
|Once an item is sold, you write it off as sales. But when the item is refunded, and you've reimbursed the customer, you must record it as an expense.|
This way, your cash flow statement is balanced at the end of the accounting period.
Cash is king for ecommerce business owners. But remember, running a business is not always about revenue and income sales. You must know your expenses to create a profitable margin and price items accordingly.
Commonly overlooked aspects of expense tracking for ecommerce store owners include:
Expenses are no longer new to any seasoned ecommerce business owner. That’s why most of them already determined the suitable accounting method for their business entity, whether cash-basis accounting or accrual accounting. From there, they can make sound financial decisions and maintain accurate financial reports.
Bank reconciliation involves comparing the transactions recorded in your system with the corresponding entries in your bank statement. It is a crucial process for ensuring the accuracy and integrity of your financial data.
However, a few factors can make bank reconciliation daunting for ecommerce companies:
Suppose you're selling on big ecommerce platforms like Amazon, Shopify, or eBay. In that case, you are paying third-party fees without even realizing it. Fees like this are considered business expenses. They will be negative on your balance sheets if you don't manage them correctly.
Online market trends change rapidly. One day, a product people seldom buy will suddenly become in demand and swiftly go out of stock. Meeting customer demands is a good thing for your business. But when does it become a challenge?
Expanding your business and reaching international clients opens up a world of opportunities. But when receiving payments in different currencies, things can get tricky.
Here’s an illustration of why it can give you a run for your money:
|The Challenges of Multiple Currencies in Ecommerce|
|Fluctuating Exchange Rates||Exchange rates constantly change, making it hard to keep up. One moment, the rate may work in your favor, but it can also quickly turn against you.|
|Hidden Fees||Currency conversion often comes with additional fees. These costs can eat into your profits and add up quickly.|
|Compliance||Each country has unique rules and requirements for currency conversions. Failing to comply can result in legal issues and financial penalties.|
We’re here to tell you that the challenges mentioned above are no match for your business when you have the perfect solution: leveraging cutting-edge accounting software.
With the click of a button, accounting software effortlessly generates essential financial reports like profit and loss, balance sheets, and cash flow statements. You’ll have real-time insights into your financial health, helping you closely monitor your cash flow.
What's more, accounting software can guide you in performing various ecommerce bookkeeping tasks. You can seamlessly integrate with your sales platforms, payment gateways, and inventory management systems, streamlining data entry and eliminating the need for manual reconciliations.
As your business grows and deals with multiple currencies, accounting software can handle the intricacies of such transactions. It can automatically convert currencies, calculate exchange rates, and ensure precise financial reporting across different markets.
|IMPORTANT NOTE: Choose accounting software that aligns with your requirements and offers features like inventory tracking, tax management, and integration capabilities. |
Take the time to research and select a reputable software provider that offers excellent customer support to ensure your accounting software remains efficient and up to date.
You don’t have to rely on accounting software alone. There are accountants for ecommerce businesses ready to handle your accounting needs. Unloop is one of them.
We offer different accounting services for ecommerce business owners. We offer expert assistance in the following areas:
Hiring a professional is good for your business when things get too demanding. We aim to take the burden off your shoulders and streamline your financial management, allowing you to focus on growing your business.
We hope this blog post helps you manage your accounting tasks better. But if you need a hand, don't forget to book a call with us!
Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.