How does Accounting for E-Commerce Work?
Having good business acumen bodes well in managing your company, but you might need a well-rounded expertise in accounting for e-commerce to get the lay of the land.
Aside from the industry trends, being apprised of the financial realm and the regulatory laws that surround it is a must before you reach a certain inflection point that leads the business to the mainstream. In this blog, we discuss how good accounting builds a stronger foundation for your e-commerce, or smarter solutions for recovery from any unexpected slump.
The e-commerce accounting difference
There are few overlaps in terms of e-commerce accounting and traditional accounting. For instance, there is still a need to maintain important financial records (such as receipts), keep track of cash inflows and outflows, and make sure the company sustains its solvency. However, there are a number of nuances that introduce complexity in the equation. Take a look at these factors and the potential solutions for each one:
|Factors||Variance from Traditional Accounting||Approaches/ Solutions|
||Because of the different selling platforms a single e-commerce business can use, transactional data is often found on these channels, and not on credit cards or bank accounts.||Get a grasp of how to obtain transactional data from your selling channels.|
It is of paramount importance that you know how stocktake and COGS figures affect your gross profit and margin.
Try to focus on these salient points: ·
|Explore inventory tools that automate these tasks and track your in-stock items. You can also try using some cloud accounting tools that offer inventory management features.|
Traditional business and e-commerce taxes in Australia are almost the same, albeit the latter's isn't as extensive as the former's tax responsibilities.
For e-commerce companies, what you'll mostly need to attend to are:
|To make sure your business is fully compliant with these government-imposed taxes, you can hire an accountant with an experience in handling e-commerce clients and is well-versed in the Australian regulations.|
On Inventory Management for E-commerce
Inventory translates to money. So without proper inventory, you put your business’ liquidity at stake.
In this line of operations, it's a must to be in constant monitoring of your inventory — from the production stage to the selling phase. The more that your transactions grow, the more complex and confounding this process becomes. Should this situation arise, what do you do?
Reassess your inventory practicesChoosing a tool to manage your inventory when you were a startup was more of an arbitrary one. This may have worked out during the early stages of the business, but as it develops, it’s inclined to take on a futile state that can cost you more money, or could wind you up settling for bigger taxes than you're subject to.
One way to reevaluate your inventory management is by doing an acclimation of your current practice along with other firms in your industry. Turning over a new leaf reinvigorates your operations and gives you a better pulse on your scaling inventory.
Use inventory management softwareWorking manually isn't the way to go if you want to expand your e-commerce entity. Consider investing in a management software to keep tabs on your inventory across all the channels you have your products on, and consolidate all inventory data in real-time.
Top-of-the-line accounting platforms offer the flexibility and integrations you need to have a seamless experience in exporting software data directly into your books.
Recommended e-commerce accounting software
In selecting an accounting software for your e-commerce entity, there's no one size fits all solution. There are a plethora of accounting programs to choose from, but you need to make sure that your selected software would be the right fit for your requirements. Some of the leading e-commerce accounting software you might consider are:
See here: QuickBooks vs. Xero
What should you look for in your accounting software?
Keep an eye out for these components when you pick out your cloud software:
- Integrations. If your products are hosted using Shopify, e-Bay, BigCommerce, Amazon, and the likes, pick an accounting software that easily integrates these sites into their platform.
This way, when any changes in your sales or inventory come up, your e-commerce channel will automatically reconcile them to your accounting software and vice versa.
- Reports. These are commonly offered by high-end software providers, but are only on the basic level. If you're expecting deeper insights, go for advanced reporting, especially for inventory.
- Inventory Management. As we have been discussing in this article, inventory is the make or break factor of e-commerce. Spreadsheets alone aren't enough to meet the demands of modern inventory management. This is where the capability of accounting software comes in.
Accounting for e-commerce is among the many back-office foundations that gear your business for the fierce contention in the industry. The rise and the ease of both e-commerce and online shopping obscure the looming development the industry are about to undergo, so to stay ahead in the competition, start by establishing a strong financial ground, then work your way up.