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Ecommerce Accounting's Pitfalls and Obstacles

Entrepreneurs are enthralled by eCommerce because of its low barrier to entry and perceived simplicity.

It appears to be simple to promote items that are already well-liked on sites like Amazon and eBay. The issue of operating an online business is a point of debate.

The pains of eCommerce accounting are shared by both online merchants and their accountants.

Here are the top 5 problems that small eCommerce companies confront and how to overcome them.

1. Sales Tax

Ecommerce sales tax has become more difficult in recent years. The most significant change occurred following the Supreme Court’s decision in the Wayfair vs. South Dakota case in 2018.

Most online retailers must now pay taxes in nearly every nation where they make a purchase, as a result of recent international tax regulations.

The implementation of new economic nexus laws has resulted in revenue and/or sales volume criteria.

The IRS maintains these records to determine when a company must pay taxes.

Previously, you were solely in charge of collecting sales tax where your company’s physical location is.

We’ll go through everything you need to know about an economic nexus in the sales tax walkthrough.

Alan Chen

Free 30-Min Strategy Session

By the end of this Strategy Session, you will have a clear understanding of the next steps you can take for your business to take advantage of the tax deductions you are missing out on.

Tax locations in brick-and-mortar retail may be few. Thousands of tax identifiers are now required by online vendors.

Furthermore, sellers are required to submit taxes on a regular basis, usually monthly or quarterly.

There are several tax-related software systems on the market like Quickbooks.

Keep accurate accounting of every transaction so there’s less uncertainty when it’s time to submit your taxes.

2. Inventory Management

For small businesses, keeping track of inventory is a difficult job. New goods and sales channels just add to the problem.

If you have more than one warehouse or fulfillment center, you’ll need to calculate and keep track of what you’ve got, its value, and where it’s housed.

Every transaction modifies the overall inventory quantity. Inventory is also affected when returns return to the warehouse in good condition.

Even if it isn’t linked to accounting, inventory management is a pain. It’s the cash flow spine of every online endeavor, therefore keeping tight control of it is essential.

The most common ways of running a business are automated and integrated inventory management systems that may be expanded.

Systems that use varying levels of verification will be able to provide the most up-to-date financials.

The most popular ecommerce platforms charge a fixed monthly fee to use their platform. Other hidden costs are more difficult to keep track of.

This is an excellent illustration of how Amazon’s pricing model works. There are costs associated with listing, transactions, advertising, and delivering each order.

The fee is determined by the product’s category, its size and weight for shipment, and the distance between you and the vendor.

At the end of the month, these expenses are recorded together as “Amazon fees” giving sellers zero granularity.

If you have an agent, you’re in luck: the lack of knowledge makes budget planning that much more challenging. In our blog article, we’ll go over what goes into a seller fee.

But what if you’re selling items on e-commerce platforms other than Amazon? You could do it manually depending on their pricing models.

When your organization expands, automation is more sustainable since you won’t have to perform as much busywork.

3. Handling Returns

One of the drawbacks of eCommerce is that returns are difficult to track.

The majority of businesses let their customers return items that do not fit, are damaged, or are ineffective for any reason.

Having a generous returns policy may increase brand loyalty and lead to reconversions, according to studies.

It’s in your online business‘ interests to accept returns as a fact of doing business. Returns, on the other hand, complicate the accounting process.

Customers are given a refund and the returned item(s) may need to be reinstated to the inventory.

The greatest way to deal with returns is to pay close attention to the details.

Sellers must decide whether or not to write off inventory in order not to double-expense it and disrupt their accounting.

Many inventory management systems include the feature of managing returns. You can also manually update your accounting software to track returns.

4. Manual Data Entry

Every transaction must be recorded in detail, including the following:

  • Local sales taxes.
  • Seller costs.
  • Item numbers sold.
  • Shipping expenses, and more.

When your company grows, manually keeping track of all of this information gets more difficult.

Some businesses employ accountants to do so, but you may be shocked by the expense.

Simply said, manual data entry is a major pain since it is time-consuming and prone to errors.

Automation can assist online retailers with this issue by taking over the job.

Accounting automation software like Xero can connect eCommerce stores to your accounting solution by posting all transactions.

5. Data Analytics

Certain eCommerce platforms are more advanced than others when it comes to analytics and reporting.

This is a problem for sellers who don’t have easy access to store performance statistics.

Customers would not be told what was going on, reacting to things that had already happened.

You may become proactive based on current data and performance history when you have good reporting.

To be proactive, you must have a deeper understanding of your accounting. With a real-time store performance tracker, you can keep track of how quickly products go through the system and which channels produce the most money.

There are dozens of solutions on the market, and you can use them to make data-backed decisions about which moves to make next.

What Should You do if you are Overwhelmed? (Which is not your fault)

As your company grows larger, the issues you face become increasingly complicated.

When you reach this stage, you must hand over control to the specialists so they can assist you in growing your online business while keeping your focus in your business growth only.

We here at Free cash flow, helping online businesses (like your business) to boost their revenue and doing what other firms miss.

I know you’re anxious about not receiving as much as you had hoped, but believe me when I tell you that we exceed your expectations.

Move your online business to the next step NOW and book a free consultation callwith Alan Chen, CEO of Free cash flow

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