The previous years only showed us that ecommerce is booming and continuing to be popular with entrepreneurs. Large retail sites like Amazon, Shopify, and Etsy have virtually everything you could want to buy. And setting up an ecommerce business opens your products and services to millions of customers that could give you big earnings.
However, along with the flow of money, accounting is essential in keeping your business running, and first-timers may find accounting challenging. In this blog post, we'll run down some common challenges business owners may encounter and share some tips to overcome them.
Managing Inventory
Inventory management is a challenging endeavor for both large and small enterprises. Inventory management involves many tasks to ensure that your business runs smoothly. First, listing all your products is crucial. You should always have a rough estimate of the number of your items. This practice will help you post the right product listing on your platform and take note of products you need to replenish.
You are also responsible for tracking your goods if you have multiple warehouses. It is best that you distribute your products equally, so your items don't go out of stock. On paper, listing and tracking inventory looks easy. But what do you do when delivery delays happen, or there may be a surplus of items, or even higher demand?
Difficulties in inventory are easily overcome when you designate a team to manage them. But, if you're a small business owner who does everything by yourself, your best option is to get accounting software with an inventory management feature. This feature will automate inventory tracking for you and even notify you of your deliveries and the number of products in stock.
Understanding How Sales Tax Works
Understanding how sales tax works is a part of ecommerce accounting. Small business owners dread accounting mainly because of its tax implications, but you can't run from it forever. Every ecommerce business needs to comply with sales taxes. That's why it is important you understand how the collection is done and pay the right taxes to proper tax collection agencies.
Many things could go wrong when you mishandle your taxes, and paying penalties will do no good for your business. Here are some practices you can do to overcome challenges in handling your business sales taxes:
- Sales tax rates may differ depending on your location or the type of product you are selling. Sale tax rates are posted on the tax collection agency website, so check them out so you can impose the proper sales tax on your goods.
- Take advantage of the features of your ecommerce platform. If you sell products on Amazon, you can use a service that allows consumers' sales taxes to be automatically collected. This way, you can guarantee that you are collecting the right amount of sales tax for remittance.
- Invest in the right accounting tools. Software like QuickBooks Online and TaxJar calculate the sales tax you need to collect for each of your products.
- Be mindful of the due dates. Depending on your sales volume, the revenue agency may require you to remit quarterly, semi-annual, or yearly sales tax.
Handling Product Returns
If you have an online store, you will have to handle refunds and returns one way or another. These returns can really put your accounting tasks into chaos. There are several accounting tasks you need to perform when handling returns. First, when an item is returned, you need to have it restocked in your inventory to put it up again for listing.
Furthermore, refunds can disrupt your cash flow. For example, once an item is sold, you write it off as sales. But when the item comes back for a refund, and you've paid the client back, you must write it off as an expense. This is so that at the end of the accounting period, your cash flow statements are balanced.
Figuring Out Your Business Expenses
Cash is king for ecommerce businesses. But remember, running a business is not all about revenue and income sales. To keep your firm operating, you must also pay your expenses. For example, you must cover expenses when you restock your inventory.
If you produce your products, there are expenses in buying equipment. You have to understand your business expenses to ensure you create a working profitable margin and you can price your items accordingly.
Here are some things you can do to keep track of your expenses:
- Track every cost related to the product sold.
- Designate a cost ledger in your bookkeeping software entries.
- Pay attention to your profit and loss statement. Use accounting software for your financial statements to ensure that they are accurate.
Keeping Track of Third-Party Marketplace Fees
If you're selling on big ecommerce platforms like Amazon, Shopify, eBay, and the like, more likely, you are paying for third-party fees without even realizing it. These fees are considered business expenses, and if you don't manage them correctly, they will be a negative on your balance sheets.
Here are some tips to help you understand third-party marketplace fees in different ecommerce platforms:
- Never skip reading and understand the seller's agreement provided by the platform. All crucial details about payment fees should be included in the agreement.
- Consider the fees when pricing your goods to ensure you achieve your profit margin.
- Use accounting software for ecommerce businesses to help you calculate fees and plan your expenses accordingly.
- Other platforms offer bulk listings and promotions that can reduce the cost of fees. Take advantage of these offers to lessen fees.
Meeting the Demands of Your Customers
Online market trends change rapidly. One day, a product that people seldom buy will suddenly be in demand, and you will find it out of stock. Meeting the demand of your customers is a good thing for your business.
Here are some ways to keep up with the demands of your clients:
- Understand the demand for each product you sell and check with your suppliers on how fast they can deliver when you need fresh stock.
- Do business forecasting to determine which products are most in demand and the season when customers look for them the most so your inventory is always ready.
- Don't overbuy items that are sold slowly. Doing this will lock up money in your inventory which can appear negative in your financial reports.
Handling Payments in Different Currencies
If you want to expand your business, offering your products to international clients is good for your business. To make it easier for them, you must receive their payments in their country's currency. However, converting currencies can be confusing and involves hidden charges.
Here are some things you can do to overcome challenges when accepting different currencies:
- Look for software that can help you sell in as many different currency options as possible. This will make conversion easier for you and your customers.
- Use accounting software that can handle multiple currencies to ensure that exchange rates are always on point and all fees are handled accordingly.
- Know your credit card payment processor's exchange rate and compare it to the baseline of mid-market rates.
Unloop: Accounting for Small Ecommerce Businesses
Challenges in ecommerce accounting are common, especially when you're new to the online world. But there's no need to worry. There are accountants for ecommerce businesses ready to handle your accounting needs. Unloop is one of them.
We offer different accounting services for small business owners. We have:
- Bookkeeping
- Accounts payable services
- Forecasting
- Payroll
- Taxes
Hiring a professional is good for your business if things get too challenging. Unloop can take care of all your accounting requirements so you can concentrate on other areas of your company. 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!