As entrepreneurs and business owners, you know, YOUR NUMBERS ARE EVERYTHING! This article will help you understand what modern eCommerce accounting with a human touch is. Read on…
We need to know both where we stand as a company and how we measure up to the competition. In order to stay on top of it, we need a successfully run back office.
Why? Because the success of any business depends on a healthy accounting system.
All too often entrepreneurs with tremendous passion and drive start off with great strategies but lack the necessary financial tools needed to succeed.
Their accounting and bookkeeping practices let them down with delayed reporting, accuracy issues, and limited analytics, resulting in cash flow problems, diminishing margins, and stunted revenue growth.
To avoid this, you must embrace and take advantage of the technological disruptions shaping the corporate workflows.
Looking for a flexible accounting solution that meets your e-commerce business needs, and the most efficient bookkeeping practices is a good start. But, of course, you will always need that human touch of expertise, one that is more than just perfect for monitoring controls, one that comes with years of experience across multiple industries and niches, like a Fractional CFO. But let’s not get ahead of ourselves: Let’s first understand e-commerce accounting…
What is eCommerce Accounting?
Most of us believe that e-commerce accounting is no different from accounting for any other business. If you’re an eCommerce seller and/ or have an eCommerce business model, then you already know your needs aren’t the same as a traditional business. You have an omnichannel with data and dashboards unique to your business, and a traditional accountant might not know where to look or how to analyze your data.
Thus, trying to work with a traditional accounting firm with an eCommerce business could actually hurt your company.
Since cash flow stability and secrets of profitability for any business lie in its accounting practices, poor accounting can lead to business failures or mediocrity.
So, what do you need to know about e-commerce accounting to get things right?
Every industry is different and the heavy involvement of technology and the fast-paced nature of the e-commerce industry makes it incredibly different from others. Therefore, it’s important to understand the unique aspects of eCommerce accounting in your business.
E-commerce accounting is different from ordinary accounting in four different ways:
Obtaining Transactional Data
Finding transactional data is pretty simple for businesses outside of e-commerce. All they need to do is refer to the bank statement that will provide information on every transaction that took place. The only real challenge for them is to handle their outstanding bills or invoices. If they manage to do that well, 99% of the work is done.
Obtaining transactional data is not that easy for e-commerce businesses. Let’s take an example to clarify the difference. Suppose you have a store on Shopify or Amazon. When you see a deposit in the bank account, you can’t simply record the amount as income on the given deposit date for two reasons:
- The deposits that hit your bank account from selling channels are net deposits. This means transactions other than sales impacted the amount coming in. There might actually be 20 to 30 different activities impacting each net deposit. These might include returns, charge-backs, sales tax, shipping fees, and so on. All these transactions need to be accounted for when recording income. Otherwise, the income and other amounts that you record will be inaccurate.
- You’ll miss the correct timing of the transactions. For instance, if a deposit comes from Amazon in your bank account on 6th January, most transactions for that deposit will have taken place in December. Not taking into account the timing of transactions may even impact your yearly financial statements, resulting in error-prone reporting.
Inventory Management and Cost of Goods Sold
Inventory management is among the most critical functions for an e-commerce firm, unless you’re only a drop shipper providing a platform to online buyers and sellers.
Given the complexity involved in e-commerce inventory management, you need an in-depth understanding of how to handle accounts related to it. The key areas you should understand include:
- Calculating the advanced COGS value for each item you have in inventory.
- Processes involved in inventory management.
- Bookkeeping standards specific to COGS and inventory.
Sales Tax for E-commerce Transactions
This is the most annoying function impacting e-commerce accounting. What’s unnerving about this function is that sales tax laws for e-commerce transactions are constantly changing.
Each state has its own law concerned with collecting and paying sales tax. Orders can come from anywhere and staying updated and compliant with all state laws is a huge challenge. The best approach is to hire a sales tax expert or consultant to ensure full compliance.
Also, automating your e-commerce sales tax process and having a dedicated bank account for sales tax funds should be of great help.
Costs Associated With Foreign Transactions
As opposed to other businesses, e-commerce businesses typically deal with a large number of foreign transactions.
The costs associated with these transactions such as the import duties at destination companies, packaging standards for international shipping, etc., can greatly impact your profitability and cash flow. You need to be aware of the right tools to minimize these costs.
Some e-commerce accounting solutions provide functions to handle foreign transaction costs. An experienced e-commerce accountant can help you tackle them with ease.
Keep reading to find out how modern eCommerce accounting with a human touch looks like.
eCommerce Accounting with a Human Touch
It’s not that the accounting profession is in danger of disappearing overnight. Roles and tasks, however, in the profession are greatly changing. Artificial intelligence can easily handle routine tasks such as transaction processing, analytics, and reporting, but the strategic and complex areas will still require human talent. Given that AI has already made its way into other e-commerce functions, it shouldn’t be surprising for sellers to leverage the technology in accounting practices.
Forward-thinking accounting firms have already started leveraging machine learning and giving employees the ability to reach their full potential. Here are the most critical areas in eCommerce accounting that require human intervention and automation.
Audit Documentation through a Document Management System
If your accounting department and auditor are still sifting through countless paper documents, it’s time to revisit your audit procedures. Start digitizing your income records and convert your existing paper documents into soft copies.
Through an efficient document management system, you’ll be able to organize all your documents that would otherwise be filed in a cabinet in paper form. While documentation becomes more efficient, the human touch lies in accountants quickly responding to audit requests and manipulating the business information to prepare for an audit.
In short, digital records allow the entire team to prepare for an audit, streamlining the process for everyone involved.
E-commerce accounting doesn’t have to be a high-tech, complicated process. A bookkeeping software enables you to process large amounts of information at a faster pace. The financial transactions and payments are typically recorded at once. A single click should be enough to record repeat transactions.
This means that the monotonous, functional role is handled by the software with minimal human intervention to program things.
When handled manually, the bookkeeping process is tedious and slow. The problem is addressed by a bookkeeping automation software, which can also be used to process client and tax payments, including the complex ones.
Many e-commerce sellers waste considerable time doing taxes. For your information, modern e-commerce accounting integrations can do most of the heavy lifting necessary during the filing season. The system will automatically calculate PAYG, GST, and other BAS requirements.
The human touch involves using this information to prepare yearly, quarterly, or monthly BAS. Then, give your accountant or tax preparer the green light to go into your system to finalize and audit the information before submission to ATO.
The system also allows you to process and submit tax declarations for employees and finish payment summaries and all financial year-end tasks.
It’s common for business owners to turn up at premises on weekends or arrive early during the time of closing or tax filing season. With cloud-based accounting solutions, this can be avoided.
You don’t need to be at your office desk to access the financial records and system. Since the entire system will be accessible on any device, you can handle the functions from wherever you are.
Some platforms even allow you to access information and manipulate data through mobile apps. All you need is a smartphone, tablet or iPad to get the most critical things done.
Automated Invoice Approval
Manual approval of invoices can take longer than ever, and there’s always a chance of losing documents. It might seem cheaper to obtain invoice approvals but given the inefficiencies and risk of document loss, it may actually prove more expensive in the long run.
Automation, on the other hand, allows for quicker receipts of digital invoices, making sure that all approvals are sent to concerned individuals via appropriate channels in a timely manner. When it comes to e-commerce invoicing, automated approvals are even more critical due to the high volume of orders.
Efficient Monthly Close Process
If you wish to reduce the stress and hassle associated with the monthly close process, choose an accounting solution that automates it. Using an automated system through this integral process means you and your team can focus on reporting the implication of the numbers that are computed and presented faster by the system.
Also, when you attempt to handle the close process manually, the chances of errors and inaccuracies remain considerably high, especially if things have to be rushed. Automation also improves the accuracy of information during a crucial time.
Data Management and Analytics
Just as your e-commerce store obtains and stores critical customer data pertaining to buyer behavior and preferences, your e-commerce accounting software should serve a data management solution that stores and organizes financial data and makes projections based on that.
However, automated data alone won’t be helpful. Human intervention is imperative when it comes to analyzing the data and making important business decisions based on the analysis.
Gone are the days when you’d spend a fortune on data security or invest in expensive backup solutions. Modern e-commerce accounting software is powered by incredible technological advances. Even the most basic subscriptions for cloud-based accounting services come with solid data security systems.
Most of the cloud providers rely on multiple data centers with information copied on more than one server so you don’t suffer data loss if there is a system crash or failure.
Moreover, many of these packages are subject to automatic updates to ensure that you keep operating with the latest program.
When it comes to e-commerce accounting, real-time reporting proves extremely valuable. The rapidly evolving nature of the industry means you need real-time information at your disposal to make quick decisions.
All the financial information and transactional data for daily operations are captured in a single platform and can be viewed on the dashboard. You get a real-time snapshot of your bank balances as well as outstanding bills and invoices so you have a closer eye on your finances and greater control over the cash flow.
Modern e-commerce accounting is about striking the right balance between automation and human intervention. The underlying goal is to streamline the functional roles to make things efficient and allow for more successful decision-making.
Given the fast-paced nature of the e-commerce industry, automating the accounting processes becomes even more important. You deal with hundreds of invoices and other order-related documents every day. Handling them manually means you can hardly focus on your core business functions, such as generating more leads and boosting conversions.
Yet, no software is capable of running entire systems on its own. Even the most sophisticated solutions require human intervention for programming tasks and processing documents.
If you’re looking for an eCommerce solution with a human touch, Outsource your accounting function to us here at Fully Accountable. We are an experienced firm specializing in accurate and consistent reporting for the e-commerce niche. We recently made it to the CFO Tech Outlook’s list of top 10 Outsourced Accounting firms, and are celebrating our second year in a row atop INC. 5000 as one of the fastest-growing companies in America.
Our accounting experts have first-hand knowledge of e-commerce accounting practices and tools. Our detail-oriented team is always determined to exceed client expectations on a daily basis. To learn more about our services, please click here.
To get in touch, dial 1-877-330-9401 now or schedule a strategy call.