Why Proper Accounting For E-Commerce Businesses Is Important
The explosion of e-commerce has led to a growing number of entrepreneurs launching online stores each day. Although product listings, promotion, and logistics often take precedence, there is an essential foundation that many e-commerce businesses miss when starting up: accounting. Without clarity from the start, even the best e-commerce brand can struggle to grow. Accounting for e-commerce businesses is not simply about organizing paperwork; it's about creating sustainable success in the long term.
E-commerce accounting isn't just as simple as following traditional processes that are adapted to handle e-commerce; there are unique aspects of operating an e-commerce business, including managing inventory costs, tracking revenue across multiple channels, and complying with sales tax regulations.
As a result, accounting for e-commerce businesses is more complicated than following a single bookkeeping function. Furthermore, online sellers are faced with challenges that require proper planning, strategies, and real-time reporting with professional expertise.
A Solution to Navigating the Unique Accounting Challenges of E-commerce
Typical brick-and-mortar sellers may sell their products through a single channel; e-commerce sellers typically use multiple channels to reach customers (which may include Shopify, Amazon, Etsy, etc.). Each channel can have its unique fee structure, payment schedule, and reporting format; for example, the commissions taken by Amazon or Etsy will affect the overall price to the business, which is not easy to find and then bundle with other operations within a business. Proper accounting will need to combine all channels into an overall financial picture and framework.
Additionally, e-commerce companies also have to keep a close eye on their cost of goods sold (COGS). If you can't measure your COGS accurately, you're not going to be able to assess your profit margins, price your products, or make educated purchasing decisions. Without sound accounting, it's also easy to get inventory wrong, over-order, and not fully account for the shipping costs involved.
Another layer of complexity is sales tax compliance. E-commerce sales tax legislation varies state by state, and each may create “nexus” (business activity), which will have you collecting and remitting sales tax to more than one jurisdiction. Given all of this, compliance will loom heavily on one-commerce businesses, and it will take proper financial management to steer ahead of compliance issues.
How Professional Accounting Will Aid Sustainable Growth?
Good financial reporting is the foundation of better business decisions. When e-commerce owners have good books, it helps identify the products that generate profit and turnover, which ads are providing real ROI, and when to expand on inventory and staffing levels.
How can professional accounting help grow your e-commerce business?
Cash Flow Management: Having visibility into cash receipts and disbursements can help you avoid overdrafts, missed payments to vendors, and supply chain issues.
Inventory Management: Accounting for inventory in real-time means you won't be surprised by stockouts or slower-moving inventory tying up cash.
Profit Margin Analysis: Knowing your margins at the SKU level helps you sell the right stuff and discount more strategically.
Tax Time Readiness: If you keep your books organized throughout the year, filing your taxes will be quicker and more precise, not to mention with no end-of-year scrambling.
Investment Confidence: If you're seeking funding or want to sell your business, clean financials are a vital part of due diligence.
No one is saying DIY or off-the-shelf solutions won't work at the beginning, but as your sales grow, your finances get more complicated. At some point, it is no longer just helpful; it is necessary.
Common E-commerce Accounting Mistakes
By not having the expert support, e-commerce entrepreneurs often make mistakes that can easily be avoided. The common offshoots for E-Commerce accounting include:
Combining business and personal expenses makes it impossible to analyze performance or report your taxes correctly.
Failure to regularly reconcile sales channels creates gaps or overlaps in revenue reporting.
Neglecting currency conversions, particularly with international sales, distorts true profit numbers.
Underestimating tax obligations creates unnecessary risk for substantial penalties and fines associated with noncompliance.
Procrastinating with bookkeeping creates a backlog and confusion during crucial times of decision-making.
Avoiding mistakes in accounting starts with a good accounting system and a strong advisor who knows the ins and outs of e-commerce.
Why Partner with an E-commerce Accounting Specialist?
Accounting for e-commerce businesses cannot be "one size fits all". When you work with a firm that has experience with your industry's needs, your books will reflect the realities of selling online. When your accountant understands your e-commerce systems, software, and automations, the bookkeeping process will seamlessly integrate and scale with your business.
At Atlantic Tax & Accounting, we know how e-commerce sectors work, so we fully understand the financial strategies to help build a successful e-commerce business.
Whether you are an e-commerce startup growing quickly or a long-established brand hoping to increase efficiency in your operations, timely and accurate financial records and access to the right data allow management to react and implement strategic initiatives with confidence.
Manage Your Finances With Atlantic Tax and Accounting
In the rapidly changing landscape of e-commerce, growth is not just a question of achieving greater sales; growth is ensuring you have clarity and control over your funds. Quality accounting does more than enable you to comply with legislation; quality accounting will enable you to thrive.
Here at Atlantic Tax & Accounting, we provide tailored taxation and accounting services to support e-commerce sellers through every stage of growth. With the right systems to manage your accounting, you can stop guessing your finances and start growing your business. Connect with us today!
