Accounting for e-commerce businesses
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- Managing a Business
Is your business model one that strongly relies on e-commerce?
As a direct impact of Covid-19 and the unknown it presents daily to the community, owners have fast tracked the need to move their main sales focus online as a rapid solution in keeping their business alive.
Template based, with easy app installation for all the key functions an e-commerce site desires, these platforms have been built with turn around times and profitability in mind.
The e-commerce effect on accounting
It is important to remember that accounting for a regular business versus e-commerce is not quite the same. While the basics might be shared, there are notable differences from an e-commerce business to a traditional one.
Here are our top three accounting questions to ask yourself if you have recently made the e-commerce switch:
- What payment methods are you offering online customers?
Apple Pay, Afterpay, PayPal, Humm, Zip Pay – there are so many payment options that customers expect when shopping at an e-commerce store. So, it is important owners understand the ins and outs of each.
- What are the fees for each payment type?
- Is there a payment delay from a time a customer pays to the time the money hits your account?
- Are there holds placed on money?
Tracking cash is essential for any business – and an e commerce site is no exception. Cash flow is one of the top concerns of owners no matter the size of the business, so keeping track of what’s coming in is essential to determine what needs to go out.
Top tip: Most platforms offer a free template for tracking cash flow. Be sure to understand the back-end functionalities of your platform so you can access the correct data when needed.
2. What costs are associated with an e-commerce platform that have not previously been required?
Launching your business into the e-commerce space changes the model you may already have had previously – in particular, the product and operational costs.
Where previously shipping and packaging may not have been a financial factor in profit margins, when it comes to e-commerce these additions are a major factor when pricing your goods.
All too many times business owners lose the profit they had to an inability to factor in shipping and packaging. These items are not often billable separately at checkout, rather added to the product cost for ease of the shopper.
Top tip: Work with your accountant to devise a price point that keeps profit margins strong, but not at the cost of being overpriced in a highly competitive e-commerce space. Shoppers do their research before committing online – so should you.
3. Should I regularly track the sales of my e-commerce business?
Tracking sales is a crucial part of the success of any e-commerce business. Alternatively, not knowing what your break-even number is when it comes to online sales can be detrimental – no matter how great the website looks.
For example: lets say you need to sell 1000 units to break even each month. It is now over half way through the month, and you have only sold 200.
If you are tracking your sales, you can see this and have time to do something about it.
Top tip: If you are planning on implementing a paid marketing campaign to stimulate business be sure to factor in the costs of this into your profit margins. Afterall, if you spend $3000 to increase sales by $1000 the results do not add up!
Accounting questions for your e-commerce business:
- What are your earnings before tax, sales numbers, cost of goods sold and all other fixed expenses?
- What cash is coming into your bank account each month? A three-month payment plan of $1500 does not mean this amount hits your bank, rather $500.
- Have you set up proper tax rates for your customers? Are you including tax on each product or collecting and putting it aside?
- Have you planned for your tax payments?
- Do you understand your balance sheet?
- Are you using appropriate accounting software?
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Using Xero cloud solutions, Elevate Accounting can enhance business efficiency, offer specialist industry solutions and custom make your accounting system tailored specifically to your needs.