It’s no secret that e-commerce grows fast. But it’s important to understand that the speed of its growth is truly unprecedented - according to recent Forbes projections, the online sales sector is predicted to reach $5.8 trillion by 2022.
At the heart of every successful e-commerce business lies an orderly bookkeeping process. Those SMBs that consult with accounting professionals, employing their professional services tend to report higher savings in terms of taxes, as well as in the hours saved and are able to go through a largely stress-free tax period.
But surely there are challenges behind it all? Every experienced accountant will tell you that e-commerce is one of the most challenging, albeit rewarding niches. The challenges come with the need to maintain and track an inventory, sometimes massive and spread over several states. Paying the sales tax accordingly (this example has been famously illustrated with the use case of Amazon third party merchants) is another challenge and requires solid tax law expertise. Besides, there are many other uniquely e-commerce tasks and issues connected to managing multiple e-commerce clients at once, and they deserve special attention.
Let’s look at some of the main challenges that accountants working with multiple e-commerce businesses face today.
Check out the webinar “How to efficiently do QuickBooks/Xero accounting for multiple e-commerce clients?” on October 14, 2020, at 2:00 PM Eastern Time.
Maintaining well-organized reports
Cash flow report, balance sheet, profit and loss statement - all of these reports are crucial for business decisions, but they take on an even more important role in e-commerce. As accounting basics, all three are important and simultaneously belong to the category of the most common accounting challenges.
A balance sheet is necessary for potential investors and bank loans, as it is often seen as one of the main considerations when financing a business (along with a credit score).
Profit and loss statement made on a monthly, quarterly, or yearly basis shows a summary of company revenues and expenses incurred during the given period, as well as its profitability, and is necessarily accompanied by a cash flow statement.
Cash flow statements show the areas where cash is produced and consumed, and together with the profit and loss report, it can show whether a business is sustainable.
Because of the size of e-commerce inventory, these statements become particularly important in order to be able to see and track the real-time picture of how the business is doing. The fees, mentioned later on, also form an important part of reporting, which is necessary for a correct bookkeeping cycle.
The challenge here is being able to include all of the variables, and smart automation is often an answer. It is virtually impossible to create a real-time overview without utilizing it, as could have been done previously for small brick and mortar retail businesses.
Vendor fees
Many businesses sell on different platforms at once and accept payment through various methods. This creates a potential nightmare for accountants, as they need to be able to record every fee paid to those vendors (Amazon, eBay, as well as to payment processors such as PayPal or Stripe).
The fee has to be recorded separately and cannot come across included in a gross sales amount, as this will result in an imbalanced P&L statement. Many accountants might prefer certain accounting software (such as QuickBooks Online), but their integrations with e-commerce can still be very limited. For example, even if it works in one case, an integration often doesn’t exist for other platforms and methods their multiple clients use.
Choosing the right software
Given the specific nature of e-commerce, it is important to implement the right processes to facilitate data recording processes. With thousands of transactions, cloud accounting is not even a question anymore: the costs of hiring someone to manually add that data into an accounting software would be sky-high and it would be very prone to error.
However, even a very tech-savvy accountant can start feeling overwhelmed by the sheer amount of different app subscriptions needed to deal with an ocean of different payment providers, vendors, and platforms. Ideally, accountants need software that is built with an accountant in mind, allows for managing multiple clients in one place easily, and is geared towards providing as many integrations as possible, not sacrificing the quality and accuracy of data provided.
Dealing with refunds
Dealing with e-commerce refunds is challenging for two reasons: the effect on the inventory (a double expense should be avoided at all costs, and timely write-offs are a must), as well as the bookkeeping consequences. As you can see, it’s clear that accountants dealing with e-commerce will use cloud software - but surprisingly not every cloud software is able to properly sort out the refunds.
e-commerce accounting for returns presents challenges like having to decide when to write off the inventory and ensuring that the inventory doesn’t get expensed twice. Returns can complicate the accounting for your inventory and if you aren’t careful they can make your books worthless.
Final word
Despite these challenges, there is one great silver lining: small e-commerce businesses and their accountants have an advantage in that they intimately understand the cloud, and therefore have all the tools to run a profitable business.
Check out the webinar “How to efficiently do QuickBooks/Xero accounting for multiple e-commerce clients?” on October 14, 2020, at 2:00 PM Eastern Time to learn more about unique tools accountants can use to leverage the cloud and increase the efficiency of the existing bookkeeping processes as they deal with common e-commerce accounting issues. You can register here.