Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.
Running an ecommerce business is truly a unique experience. It is a relatively new and exciting business model that can be applied to any industry. You are constantly finding new ways to generate revenue, keep your customers happy, and grow your company in a remote setting. Moreover, you get the opportunity to expand your customer base on a global scale.
It is an opportunity that can bring you millions, but it is easier said than done. Along with the exciting opportunities, ecommerce has some unique challenges that you may not have faced in traditional brick-and-mortar businesses. This is especially true in the accounting aspect, which should be one of your main priorities as early as possible.
This article will discuss how certain differences make ecommerce business accounting more complicated. While they might be unfamiliar to you, understanding them will help you identify what to focus on and stay on top of your finances like never before!
5 Unique Points About Accounting for Ecommerce Businesses
Shifting from physical to remote financial transactions can be time-consuming and overwhelming, especially the drastic changes you need to make. It can be confusing for newbie ecommerce sellers, so it is important to distinguish what new features make ecommerce accounting different.
Once you understand them, you will be able to plan an accounting system that works seamlessly for your business. Let's begin with the five unique points about accounting in ecommerce.
#1: Complying With Sales Taxes
Online selling takes you to foreign lands, and it is amazing how you can attract more clients from different parts of the world through online transactions. But at the same time, it can also be a headache on your sales tax obligations. Why, you ask? Here are some specific reasons why:
- Ecommerce sales tax regulations are ever-changing.
- Sales tax rates, particularly in the US, vary per state.
- There are many factors to take into account: economic nexus, physical presence, affiliates, participation in local events, running campaigns on in-state platforms, and more.
If you fail to comply accurately and on time, it can cause you additional charges. It is best to use a taxation tool or work with tax consultants to ensure you stay on top of your sales tax duties.
#2: Location of the Transactional Data
In traditional businesses, you would usually get a copy of all transactions in your bank accounts. However, ecommerce makes it complicated by adding in several selling platforms and geographical locations. So when accounting for your online transactions, you will find them on your ecommerce website instead.
However, you get complicated data sets to track if you also sell your products on marketplaces like Amazon or Shopify. So take your time learning how to access the backend of these platforms with the assistance of accounting software and experienced ecommerce bookkeepers and accountants.
#3: Managing Inventory
Unlike traditional inventories, ecommerce inventory uses multiple channels to keep your stocks running and help you with cost-saving international shipments. It is challenging because you need to track all of these inventories. You need to know how much stock they have or where they are currently processed (e.g., customs, warehouse, returns, or in a shopping cart).
Additionally, your inventory holds your company's important assets, and they are crucial in financial management, analysis, and forecasting. An inventory management software and ecommerce accountant expert can help you handle this.
#4: Calculating COGS
The cost of goods sold (COGS) is closely linked to inventory management and accounting. It is the direct value of the items that you sell and ship. Calculating the COGS includes various costs such as materials, freight costs, and labor involved in the production.
Correct calculation of the COGS is significant to understand your profits better. Moreover, it helps you save money in the long run and take the next step in accordance with the company's current financial health.
#5: Managing Foreign Transactions
Now that you get orders from other states and countries, the transaction volume and currency will increase. Generally, that is good news for your business. However, the challenge lies in financial accounting for these variations that complicate the process. It won't be simple to issue invoices and record income due to the multiple currencies.
Hence, you need to learn how to deal with multi-currency accounting. Some examples include converting local to foreign currency (and vice versa), calculating the correct sales value, accounting for assets, filing payments to authorities, and tracking foreign exchange.
The Solution: Ecommerce Accounting Technology and Experts
Ecommerce is challenging, but that does not mean you should shy away from it. Rather, it is the perfect time for you to seek new solutions that might have a huge and positive impact on your business. The best thing about it is that you don't have to struggle for long; you can seek the help of business accounting and management tools and teams now!
Accounting Tools and Software
An accounting tool or program will give you accurate and relevant financial data. You can utilize these in generated reports for financial tracking, management, analysis, and forecasting purposes. Some of the most prominent platforms are Quickbooks Online and A2X for accounting, and OFX for setting up multi-currency accounts.
Ecommerce Experts in Bookkeeping and Accounting
Technology makes the job easier, but real people play a role technology can never replace: adaptive learning and experience. There is more to the business than just AI; you also need ecommerce expertise from real people, a team of professionals like bookkeepers and accountants. These people can give you accurate data and actionable plans on how to keep your finances in check.
Start Your Books Right for Seamless Ecommerce Accounting With Unloop
Ecommerce accounting is a new and exciting place for your business. At the same time, it is also challenging and complicated, especially for small businesses. There are different systems and policies that you never see in traditional companies. However, it still relies on the same foundation: bookkeeping.
Accurate financial documents are everything. They are the key for you to overcome the new challenges of ecommerce and successfully grow your business. Of course, it won't be easy, especially if you are not well-versed in various aspects, such as business accounting and taxation and business accounting and finance, for instance.
If you feel that ecommerce accounting takes too much of your time or if you lack some adequate knowledge, consider outsourcing to accounting or bookkeeping firms like Unloop.
Our mission is to help ecommerce businesses from all over Canada and the US keep their books updated and accurate. We use advanced tools and ecommerce expertise to work on your financial statements, expenses, and income taxes (can be filed through a partner firm).