The Struggles of eCommerce Accounting

by Finance 30 May 2022

eCommerce Accounting

As the internet continues to become more and more a part of our everyday life, eCommerce companies are experiencing challenges that traditional organizations don’t.

A rapidly changing tax nexus increased overhead costs, and various costs on products, inventory, storage, and shipping create challenges that are unique to the eCommerce space.

Whether you use an in-house accounting team or an eCommerce accountant, you need to have a proven system in place that accounts for these challenges.

In this article, we’re looking at how eCommerce companies can combat these challenges and take advantage of the flexibility and increased market reach the internet provides.

Common Best Practices for Accounting

Before you try to understand the struggles of eCommerce accounting, it’s best to look into the best accounting practices regardless of whether you use an in-house accounting team or third-party accounting software.

Both traditional and online companies share some similar best practices and learning these best practices will help you take full advantage of your accounting methods.

1. You need a bookkeeping system-

It doesn’t matter what type of business you have, you need an organizational system that helps you understand your cash flow and financial health.

2. You need a business bank account-

No matter how small your business is, you need an account to separate your business and personal finances.

3. You need to understand basic financial metrics-

You don’t need a finance degree to run a business but you will need to learn how terms such as revenue, expenses, and profits affect your business. After all, you need to pay staff, buy inventory, and meet essential business needs to successfully run your business.

4. Calculate and pay your taxes-

At the end of the day, you should understand how your accounting plays into your business. Whether you use an eCommerce accounting company or you have a full-service in-house accounting team, you should understand how your accounting works and how to measure your team’s success.

After you understand what to look for in a successful accounting system, you should understand what sort of challenges you will face as an eCommerce business rather than a traditional business.

Dealing with Changing Tax Nexuses

Sales taxes are challenges for accountants in a traditional business setting, but because eCommerce companies sell across the globe, the tax nexus is much more complex. Additionally, because the tax nexus is changing so fast for eCommerce businesses, you’ll have to adapt as laws and regulations change. The tax nexus can get complex quickly.

Trying to record all of this information manually is time-consuming and it can be a huge overhead for an eCommerce business. You can avoid this problem by:

  1. Learning the time frames on your sales tax nexus and identifying who you need to pay.
  2. Learning how platforms such as Amazon and third-party marketplaces handle their sales tax.
  3. Investing in a shopping cart and accounting software that calculates and applies the sales tax for you.
  4. Implementing an effective payment system.

Understanding Your Overhead and Costs

Common eCommerce expenses include:

  • The cost of the items you sell.
  • Inventory, storage, and shipping costs.
  • Selling fees.
  • Import and customs expenses.
  • Customer service and support.
  • Rent and utilities.
  • Advertising and marketing.
  • Software and administration.

You have to pay all of these costs off the margin of your products.

To build a responsible margin, you need to understand how all of these costs will affect your bottom line.

You can implement a profit margin by following these common tactics:

  • Track all of the costs that correspond with selling your product.
  • Categorize your products as part of your bookkeeping.
  • Use the profit and loss report in your accounting software.
  • Regularly check the total costs of your products.

Once you identify all of your products’ costs, you can adjust your profit margins accordingly so you can cover your overhead costs. Identifying your overhead and implementing a method to combat them is the first step to overcoming the challenges of an eCommerce business model.

Third-Party Costs

Most eCommerce sellers take advantage of third-party sellers, such as Amazon, Etsy, or eBay. Selling through these websites presents cost issues but it also exposes your products or services to a larger audience.

For example, eBay and Etsy charge listing fees and they might charge a percentage of the final selling price. All of these marketplaces help expose your business to a larger market but they also introduce various costs to your profits margins.

To ensure your third-party sellers don’t eat too much into your profit, read through the fine print of the seller agreement and fee schedule. Account for extra fees while you’re calculating selling prices. Use software to list items and calculate the total fees you need to pay.

Examine your listing fees against the amount you’re charged in the marketplace. Take advantage of bulk listings and other promotions to reduce listing fees. Include all of the listing fees as part of your expenses in your accounting software.

Dealing with Payment Methods In Different Countries

As your eCommerce business continues to grow, it might be the perfect time to expand. When you expand, you will need to expand the payment methods you accept. You will need to accept the payments of other countries and convert them to your native currency.

Unfortunately, there can be hidden foreign exchange fees and you will need to understand how these fees affect your bottom line.

To do this, perform the following best practices:

  • Implement shopping cart software that accepts plenty of currency options so you can simplify the process for your customer.
  • Determine your credit card payment processing methods so you can see what the exchange rates are and how that compares to baseline, mid-market rates.
  • Implement bookkeeping and accounting software that can handle currencies and bank accounts.

Conclusion- The Struggles of eCommerce Accounting

As an eCommerce business, you face challenges that traditional companies don’t. As the internet expands the way you can conduct business and the number of markets you can reach, problems arise. You must consider these issues while creating your accounting procedures and deciding on bookkeeping methods. Ensure you understand all of the changing tax nexuses and determine what systems you have in place that can adapt to the rapid changes within those tax nexuses. Identify all of the potential costs on your sales and above all, use the method that accomplishes the largest margin.

Additional Resources

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Sumona is a persona, having a colossal interest in writing blogs and other jones of calligraphies. In terms of her professional commitments, she carries out sharing sentient blogs by maintaining top-to-toe SEO aspects. Follow more of her contributions at SmartBusinessDaily and FollowtheFashion

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