Accounting for ecommerce looks simple on the surface: you sell, deliver, refill your inventory, and then repeat the cycle.
But it’s not just that.
On the surface level, ecommerce accounting seems similar to accounting for any other regular business.
However, e-commerce businesses involve selling, RTOs, refunds, shipping, inventory management, fulfillment, and so much more – all having different types of expenses.
As an online retailer, you must get used to the nitty-gritty of e-commerce accounting and lay out a strong foundation for financial clarity and informed decision-making.
And because some accounting tasks consume more time than others while also demanding attention to detail, there will come a point where you must outsource your e-commerce accounting to a professional.
Outsourcing e-commerce accounting frees you up to spend more time strategizing and less time performing day-to-day tasks, resulting in business efficiency and growth.
So, let’s explore all the e-commerce accounting that you should outsource.
Key Takeaways
- Ecommerce accounting is different from traditional accounting – unique in terms of where you find your financial information and how you calculate your COGs and inventory data.
- Inventory management, financial reporting, tax planning and preparation, and order processing are some of the common e-commerce accounting tasks that you can outsource.
- Sales tax compliance is a major headache, so outsourcing this responsibility to a professional accountant will be a medicine for stress relief.
- By realizing the power of outsourcing, you can hit the paddle and accelerate your business growth.
Accounting For Ecommerce vs Traditional Accounting
Most businesses don’t understand that accounting for ecommerce is unlike traditional accounting – it’s much more complex, requiring expertise only a seasoned accountant can handle.
This confusion is reflected in their numbers, resulting in poor financial data and decision-making.
Let’s delve into the four core differences.
1. Where You Find Your Financial Data
In traditional accounting, most financial transactions are available in your bank account.
But that’s not the case with e-commerce accounting.
Here, you are dealing with multiple sales channels and a pool of payment processors.
Collecting all the data and putting it into one place can be challenging.
And let me remind you, making sense of the sales data is a task on its own. You’ve got the delivery cost, gift card credit, FBA fees, platform subscriptions, and other costs to consider.
Now most people misquote their revenue.
For example, they could have made $120K from their sales, and yet, state $65K as their revenue.
What actually happens is that they fail to consider other deductions, so when they receive $65K in their bank account, they conclude that as their revenue, disregarding platform fees, shipment cost, and other deductions.
It may not seem like a problem at first but misquoting revenue can lead to an inaccurate interpretation of your gross profit margin, resulting in poor decision making.
Now, when you have other business operations on your to-do list, outsourcing your accounting will be ideal for you.
I recommend outsourcing this responsibility to a reliable resource that has access to top ecommerce accounting software to handle your bookkeeping and accounting.
In fact, outsourcing your accounting becomes a cerebral choice considering the boom in e-commerce sales by 56% in the next four years.
2. How You Handle COGs and Inventory Accounting
Now let’s get to the second part of the equation when calculating gross profit margin – your COGs.
COGs are the cost of goods sold.
So, how do you accurately calculate this number?
The right way is to calculate the cost of each SKU.
Now, it is important to do a monthly calculation of your COGs to have a clear understanding of your gross profit margin.
You can do this by simply multiplying the product cost of each SKU with the number of goods you’ve sold in a month.
Another thing to consider here is that your monthly estimation of COGs will reflect your inventory value.
And if you do it right, your COGs will always be higher than your inventory.
3. Understanding Different Sales Tax Compliance
Sales tax compliance is a complicated business. You are dealing with different laws, currencies, and time zones.
The more you scale your business, the more challenging it becomes to figure out where you need to be collecting and remitting sales tax.
Now throw in federal and state-level laws along with international regulations – it could be difficult to keep up.
What you can do as a small business owner is keep an eye on the laws where your business is located.
And if your inventory is located somewhere else, you’ll have to watch out for that as well.
Don’t forget that the e-commerce platform might have its own system.
For example, if your online store is on Amazon, you have to stay FBA-complaint.
The good news is that Amazon mostly takes care of sales tax compliance on its own, but this feature is not available in every state yet.
Because tracking the latest sales tax rates and jurisdictions is hard, it’s best to consider outsourcing this responsibility to someone well-versed in this department.
Not only will it save you time but it will also ensure cost-saving.
4. Dealing with Foreign Transaction Fees
Ecommerce businesses dabble with foreign transaction fees more than other businesses due to the nature of their industry.
Ecommerce Accounting Tasks You Should Outsource
When it comes to ecommerce businesses, the sooner you start outsourcing your accounting, the better.
By getting an experienced e-commerce accountant on board, you’re building a strong foundation for your business.
Currently, 37% of small businesses outsource their accounting and 51% of freelancers currently offer accounting services to e-commerce businesses across the world.
Below are some of the prominent accounting services that you should outsource:
1. Order Processing for Operational Efficiency
Order processing is a process that begins once you receive an order on your website or online store and ends once that product has been delivered.
This is an important piece of your e-commerce business as its fulfillment results in high customer satisfaction and smart operations.
Here’s how it goes:
- Inventory is sent to your warehouse
- Stock is stored
- Each item of an order is picked
- Each item of an order is packed
- The parcel is dispatched through a delivery service or courier
- The parcel is delivered
Now, this is a long process that is repeated for each item in your inventory.
The best way to manage it is through automation.
You can integrate your order processing system with your accounting solution, inventory management, and payment processors to organize and streamline the process.
And with global warehouse automation expected to hike 13.6% by 2026, this looks like the best solution.
It reduces the chances of human errors, saving you time, and translating into real-time tracking updates.
By doing the groundwork, you can provide accurate information to your customers and vendors.
For example, if a customer asks for its order status, you can notify them about its whereabouts; if it’s in the shipment phase or being prepared for dispatch at the warehouse.
To ensure timely delivery and customer satisfaction, it’s best to outsource this part of your e-commerce business.
Instead of handling this on your own or hiring new employees, outsourcing this responsibility to someone with the right knowledge and tools can really expedite the process for you, and at a much lower cost.
2. Inventory Management For Increasing Profitability
To successfully run an e-commerce business, step one is to deliver your products on time.
In this case, inventory management is the key.
Problems with inventory management lead to poor customer satisfaction and reduced performance.
Through proper inventory management, you gain data visibility that can help you make better decisions.
For example, you can plan out dead stock, low stock, and overstocking.
While it may not seem necessary in the beginning, the need to automate and outsource this responsibility will become evident once you start scaling your business.
By facing inventory management challenges head-on, you can improve your profit margins through informed decision-making.
3. Financial Reporting For Better Decision-Making
Financial introspection is necessary for any e-commerce business to grow.
By following the best financial practices you can track your business operations and keep an eye on your company’s financial health.
A part of it means monitoring and tracking your cash flows to generate accurate financial statements on a monthly or quarterly basis.
By mastering your financial statements, you empower yourself in the accurate decision-making.
- You can analyze your cash flow statements
- You can track your income and expenses
- You can forecast and predict budgets and profits
- You can review your balance sheet to check your financial health
But it requires you to handle your day-to-day bookkeeping which can be time-consuming.
And because there’s absolutely no room for error here, you must decide to take this up yourself or outsource to a professional.
A wise business owner would choose the latter.
4. Tax Planning & Preparation For Compliance
Imagine working on your e-commerce business throughout the year, and being excited for what’s ahead, only to be hit with money-draining penalties during tax season.
Sounds like a nightmare to me.
99% of businesses consider federal income tax as a huge pain point.
And here’s the thing – tax compliance is a major issue with most businesses.
E-commerce companies are constantly grappling with tax regulations that are different from state to state.
Does that mean you simply put your hands up and accept it as a labyrinth of suffering from which there’s no way out?
Well, no.
This is your signal to consider outsourcing your tax planning and its preparation.
Not only will it save you time and energy, but you will also be directed in the right direction.
And more importantly, an expert can help you leverage significant tax deductions, contributing to the expansion of your profit margin.
Accelerate Growth By Outsourcing E-Commerce Accounting
Over $315 million people are expected to shop online by 2028 whereas the e-commerce industry is expected to make over $1 trillion by 2029.
If these numbers don’t encourage you to start outsourcing your accounting, I don’t know what would.
Your business can contribute to these numbers by carefully planning and embracing the power of powerful delegation.
Through outsourcing, you get:
- Financial clarity
- Cost saving
- Business Insights
- High-profile investors
The Bottom Line
Mastering ecommerce accounting is a key player in the success of your business.
While tracking day-to-day financial transactions may not feel burdensome or time-draining in the early stages of your business, you will begin feeling their weight once your operations pick up pace.
Outsourcing a crucial piece of your business is better than making it a hindrance along the way.
This is where Ledger Labs can help you.
You need someone who understands the difference between traditional and e-commerce accounting.
We’ve had 12+ years of hands-on experience in the e-commerce industry with many loyal clientele.
We cater to your business-specific needs through top accounting tools and software, regardless of its size and complexity.
It’s time to book a free consultation and see how we can take your business to new heights.
