Many entrepreneurs are drawn to ecommerce because it's an easy start. Selling items online through big platforms such as Amazon, eBay, and Shopify seems like no challenge. This is partly true. You have the potential to earn big because there are millions of shoppers on the internet.
But at some point in running an online store, you will encounter challenges. Almost every business owner can agree that ecommerce accounting is the most tedious part of running a business. But the company's finances play a key role in ensuring the business runs smoothly.
This post will focus on ecommerce bookkeeping since it is the first step in building a reliable accounting system for your business. We'll look into the common challenges business owners face in bookkeeping and share some tips and practices to overcome them.
Bookkeeping Challenges Every Business Owner Faces
When you hear the word bookkeeping, the first thing that comes to mind is documenting all financial transactions around the business. Keeping track of your transactions may seem easy at first, but when they pile up, that's when it starts to get messy. So be a step ahead with these challenges, and take note of the tips we'll share with you.
Inconsistencies in Cash Flow Statements
Proper bookkeeping is crucial in monitoring your cash flow. In order to create a working budget for your business operations and assess your financial health, you must know how the money goes in and out of your business. Unfortunately, according to research, almost 80% of small businesses have problems with their cash flow.
At the end of each accounting period, businesses tend to have unbalanced cash flow because they fail to keep tabs on their accounts receivable and payable. But there are still many factors that could affect your cash flow.
Here are simple tasks you can do to ensure your cash flow remains consistent:
- Determine your breakeven point
- Always have reserved cash for emergencies
- Make sure to review and collect all accounts receivable
- Audit your inventory
- Fulfill all your accounts payable
- Closely monitor your cash flow
Inventory Management
Even seasoned small business owners find inventory management confusing. The more products you sell and the more sales channels you open, the harder it is to keep on top of your inventory management.
The basic task of inventory management is tracking the number of items you have, knowing their value, and tracking their location if you have multiple warehouses or are outsourcing to a fulfillment center. Every sale you make means a change in the number of inventory. Changes also happen when you have returns and refunds.
Your inventory is the backbone of your business's cash flow management. Manually tracking inventory is a difficult endeavor. To avoid any issues, it is best to have accounting software with inventory tracking features. The software will automate the whole inventory management process, so you can be in full control of the movement of your products.
Calculating Expenses and Overheads
Running a business is not all about income. Of course, gaining sales is the better part of running it, but you also have to manage and understand your expenses. If you don't monitor your expenses, you can spend over your budget, which could reflect in a negative income. Here are some types of business expenses you should consider:
- Third-party marketplace fees
- Marketing and advertising fees
- Customer service fees
- Packaging and shipping costs
- Operating costs such as rent and utilities
- Payment for employees
These expenses can add up rapidly. If you fail to monitor them, they could exceed your profit margin. Fortunately, there are ways you can manage your expenses and build a working profit margin that suits your business.
- Keeping an organized and detailed book of your sales.
- Categorizing your expenses when bookkeeping.
- Generating profit and loss reports to see your sales and expenses.
Sales Tax Liabilities
The biggest challenge for ecommerce business owners is handling sales tax. Taxes, in general, are the most complicated part of accounting. Sales tax is the amount the government requires to be added to the cost of goods that consumers pay. Sellers are required to apply these taxes, collect them, and remit them to the tax collection agency.
The issues with sales tax start with identifying your tax nexus. Depending on where you belong, sales tax rates may differ. In bookkeeping, sales tax has its own ledger. This will help the owner track if they are collecting the right amount. But, if you don't know the proper rates, these mistakes can disrupt your cash flow.
You can overcome difficulties in sales tax by:
- Knowing which economic tax nexus your business belongs to.
- Seeing if your selling platforms can collect sales tax for you and maximizing this feature.
- Investing in accounting software that automatically calculates the sales tax for your products.
Handling Seller Fees
The most common scenario in selling online is paying monthly fees to continue selling on the platform. Unfortunately, these miscellaneous fees are difficult to track because they are applied differently. For example, there are fees for listing, advertising, shipping fulfillment, and other merchant fees.
When you have bulk orders, these fees may go unnoticed and unlisted. Failing to list them as expenses can reflect discrepancies on your balance sheets at the end of the accounting period. Fortunately, there are online calculators that can calculate fees in popular marketplaces like Amazon and Shopify.
But different selling platforms may vary in their fee structures. Tracking seller fees can be difficult if you're selling on multiple platforms. The best solution to not get overwhelmed by these fees is automation through accounting software. Don't play a guessing game with your fees. When mistakes pile up, it will cost you more money in the future.
Doing Manual Data Entry
We are not saying that the traditional bookkeeping method is wrong, but it's a thing of the past. Even if you have a small business, don't underestimate the number of entries you need to jot down for record-keeping. You may find manual entry easy at first, but as your business keeps growing, it will be harder for you to keep up.
Once again, the best solution for this problem is investing in accounting software. You don't have to worry about investing big money in an accounting system. Instead, take advantage of software you can use for free. Even free versions can do the basic task of ecommerce bookkeeping. So you don't have to spend much, if at all, to automate your record-keeping process.
Fraud
Fraud is probably the biggest concern that will get your bookkeeping into shambles. Imagine your records being manipulated. This can affect your business's financial health if things get out of hand. According to research, small businesses are more prone to fraud compared to larger companies.
Small ecommerce businesses don't have as much security for their financial documents as big companies do, and that's why many people take advantage of it. Here are some common fraud cases you should look into:
- Payroll schemes
- Cash theft
- Inventory theft
- Reimbursement schemes
- Cheque tampering
You can prevent fraud by being consistent and transparent with your records. Furthermore, assigning a dedicated ecommerce bookkeeper for your bookkeeping process can keep your financial records secure.
Professional Ecommerce Bookkeeping Services at Unloop
If you're an ecommerce business owner, you must have many things on your plate. Managing a business has many aspects, and bookkeeping can be time-consuming and confusing for some. Instead of worrying about it, let Unloop handle it for you.
Our bookkeeping services include:
- Automating your entire bookkeeping process regardless of what ecommerce platform you are selling on.
- Preparing all necessary financial reports, like income statements, cash flow statements, balance sheets, and many more.
- Creating custom analytics and KPIs based on your business needs.
- Filing taxes on behalf of your business.
Bookkeeping for ecommerce may sound simple initially, but when your business starts to grow, it is better to let professionals handle it. This way, the process goes smoothly and without problems.
More than just bookkeeping, Unloop also offers different accounting services for small business owners. Book a call with our experts and work with us today!