Ecommerce platforms and digital marketplaces have been groundbreaking in changing how we conduct our business, with us being able to make transactions simply through the internet. Not only that, every year it’s easier for anyone to get past the barrier for entry for both sellers and customers alike. Just this year, there is an expectation that online sales will grow to a projected USD 4.891 trillion in sales.
Considering all these factors, it makes the prospect of an Ecommerce business a lucrative deal. However, one element that is carried over from brick-and-mortar stores is the importance of responsible bookkeeping for business growth. This is where business owners start considering hiring an Ecommerce Accounting Agency.
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Common Challenges faced by Ecommerce Businesses
There tends to be a set of common problems that Ecommerce business owners may run into from time to time. These have the potential to hinder business growth due to either a lack of data or optimization issues. Here are some of the ones that online entrepreneurs should be wary of:
Record-Keeping on Ecommerce Platforms
The amount of Ecommerce platforms has been booming, with Amazon taking the largest share out of it with two-thirds of Americans have used the platform. That doesn’t mean it’s the only digital marketplace like eBay, Shopify, and Magento are all other Ecommerce sites that deal in selling products as well.
Now, the vast array of digital marketplaces necessitates a need to learn the back-end functions of the platforms to record transactions. This can become a confusing affair, especially with businesses that have deployed on multiple sites. Not only can this affect monetary transactions, but it may also affect the efficiency of how easily you can manage your inventory.
Domestic and International Markets
An online marketplace doesn’t just benefit local consumers but also entices international customers to do business with you. This comes with its own set of fees and logistical problems which requires intensive research to optimize. Entrepreneurs need to make sure that these international transactions are not only done cost-effectively but also appropriate to the terms and regulations of the online marketplace.
The Growing Number of Regulations on Ecommerce Businesses
As lawmakers finally catch up in regulating online transactions over the internet, it’s important to make sure to keep on top of these constant changes. Examples of these are certain customs, obligations, and fees that need to be taken care of when shipping internationally. Not only that, but new regulations on Privacy and Child Protection online also require new “safeguards” to be put in place to ensure that all customers are over the age of 13. Lastly, compliance with the tax laws of multiple different states can be difficult as each area has its regulations in place.
This is one of the most common reasons for an online business to stagnate: The lack of accurate information accessible to the owner. Accurate bookkeeping helps to minimize sub optimal business strategies, helping owners and managers come up with viable ideas using up-to-date information business information.
A lack of accuracy in bookkeeping can have serious effects on the growth of your business venture. It even goes beyond just being oblivious to the big picture of how your business is performing. There will be a noticeable lack of consistency with recorded transactions, gaps within data-entry logs, and missing tax obligations. It may then cause cash flow management problems and potential audits done by tax agencies, a costly affair in itself.
Why Bookkeeping Matters for All Sorts of Ecommerce Businesses
As we’ve clarified, responsible and organized bookkeeping can directly affect your bottom line. It allows you a wide range of benefits that can help to support further growth and expansion through the online space. It also helps in keeping things cost-effective and optimized, especially in online businesses that deal in both domestic and international sales.
A Clear Picture on Business Metrics
Understanding the performance of your business requires an extensive amount of data. This may involve observing your business metrics during a holiday, during a certain event, or even in comparisons studies against competitors. With access to data on your Ecommerce business, entrepreneurs may find it easier to apply for financial loans or create financial statements in record time. It also allows owners to understand the flow of profit and expense within the business, controlling the flow of money for the venture’s benefit.
Ease in filing Tax Requirements
Keeping a tidy and updated book means that owners will be spending less time tracking down long-lost transactions and attempting to explain specific trends in your business. The problems of taxes do not just disappear during tax season. Keeping a year-round initiative in tracking down transactions can make the process easier. It also allows you to enact Tax Planning initiatives to get back as much value with tax returns and refunds as possible.
Business Strategy Planning and Future Projections
A clear Bookkeeping initiative will also provide entrepreneurs with the proper data to entice long-term growth. It involves enhanced budgeting decisions, optimizing profitability, and knowing where each dollar and cent goes within your business. It also allows owners to understand the strengths and weaknesses of their businesses. Future programs can be based on these findings.
The Benefits of Hiring an Ecommerce Accounting Agency
Although it is possible to do some DIY Accounting, it can be quite a daunting affair. A simple way to manage these accounting affairs is through outsourcing them to an Ecommerce Accounting Agency. Keeping track of your finances is relegated to these Accounting Agencies, allowing you to focus more on the logistics front of your business.
A measure that saves both Time and Cost
Outsourcing these accounting affairs to an outside agency can allow entrepreneurs to focus more on improving business processes and profitability. Not only that, it can save you the expenses of your accounting department.
Insider Knowledge and Experience
An essential component that an Ecommerce Accounting Agency offers is the large number of professionals that entrepreneurs have direct contact with. These professionals will be privy to standard procedures common within the field of Ecommerce, allowing you to skip the expenses for the research and training of accountants.
Entrepreneurs and Ecommerce owners will also be able to receive the latest developments in accounting and finances. They may also collaborate with these experts to pivot the business towards improving efficiency.
Law and regulation changes are complicated affairs, so having constant contact with an accounting expert is a good investment that ensures you will always remain compliant regardless of changes.
Minimizes chances of Mistakes in Accounting Affairs
As operations grow, so does the complexity of their accounting affairs. They have to comply with differing state laws governing businesses. Sales taxes are also a problem as regulations may vary wildly. Those performing their DIY accounting programs might be vulnerable to mistakes that lead to disastrous consequences.
The penalties regarding errors and violations in Sales Tax remittance and record-keeping can differ according to the state. An example would be the penalties for record-keeping errors in New York. Failing to have financial records in an auditable format can net you up to $1,000 in penalty fees for each quarter this requirement is not met. If you’ve elected to keep your records in a digital format, failure to provide them on time can net you up to $5,000 in fines.
Business owners, both traditional and online, should know the potential consequences of Financial Misconduct and the associated fees regarding these. As we’ve seen above, these fees can snowball into amounts that are difficult to pay off. There are ways to remove, reduce, or outright dispute penalties levied onto your business. However, these may take a long time to process and keep your focus away from business matters.
Handing over accounting and financial affairs to a team of expert accountants in an Ecommerce Accounting Agency gives you a better chance of steering clear of Financial Misconduct. CPA firms tend to use cloud-based accounting software to keep track of your finances, as well as prevent potential issues that arise from intentional or accidental accounting mistakes.
Business Strategy Consultations
Financial Planning is a service that many Ecommerce Accounting Agencies give to their clients. The goal is to figure out a specific plan for the client’s business to achieve select goals and objectives within a time-frame. Especially in the dynamic and fast-paced marketplace of the digital space, businesses need to operate on a sound financial strategy.
Employing an Ecommerce Accounting Agency enables you to always be aware of your finances, allowing you to create both a budgeting plan and accurate time frames for your goals. They may also aid you by setting up in-house systems, making bookkeeping simpler.
Usually, these agencies also offer strategy sessions to explain in detail the measures that entrepreneurs can use. Whether by short- or long-term plans, the goal is to entice business growth.
Should these concepts be a bit overwhelming to you, why not book a free call with one of the many experts working within FreeCashFlow.io. Alan Chen, the CEO of our company, will take your call to discuss tax and accounting strategies. Find a time on Alan’s calendar to schedule your free strategy session today!