Ecommerce attracts business owners because of its low entry barrier and potential ease of use. Selling popular items on Amazon or eBay seems to be easy. Operating online businesses can be full of challenges. Nevertheless, online business owners as well as their accountants may agree that eCommerce accounting isn’t as easy as most people assume it to be.
Listed below are five small business accounting challenges you may encounter in the eCommerce space and how to overcome them.
5 Common Small Business Accounting Challenges:
Sales Tax Liability
In recent years, eCommerce sales tax has become more complicated. It was the Supreme Court’s ruling in the Wayfair vs. South Dakota case in 2018 that brought about the biggest change in the industry.
Today, online retailers are required to remit taxes in almost every location where they make sales.
Revenue and/or sales volume thresholds were established under new “economic nexus” rules. Businesses must remit taxes based on these thresholds.
In the past, you were only responsible for collecting sales tax where your business is physically located.
Let an experienced firm offering small business accounting services assist you.
Retail may have limited tax locations. Online sellers now have to manage dozens. In addition, sellers have to file taxes monthly or quarterly, depending on their business.
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Inventory Management
No matter how small the business is, managing inventory can be a challenge. Adding new products and sales channels only makes matters worse. You must keep track of what you have, what it is worth, and where it is located if you have more than one fulfillment center or warehouse.
Each sale changes the total inventory quantity. Returns that arrive back in good condition will also change inventory levels. Inventory management poses a challenge even without a tie-in to accounting. This is the backbone of every online retailer’s cash flow, so keeping it under control is crucial.
Scalable integrated inventory management systems are used by successful sellers. You can have up-to-date financial data with this system.
Tracking Seller Fees
For selling on eCommerce platforms you mostly need to pay a flat sum each month. Miscellaneous fees are harder to track. Amazon’s fee structure is a good example. A fee is charged for listing, for transactions, for advertising, and for fulfilling orders.
For shipping, the percentage or flat fee depends on the category of the item, as well as its size and weight.
These expenses are tallied as “Amazon’s Fees” at the end of the month, giving sellers no granularity. This makes budget planning more difficult.
To determine the seller fees paid to the most popular marketplaces, online calculators are available. What about shopping carts and other e-commerce platforms?
Depending on their fee structures, you might be able to track manually. When your business scales, you have less busy work to do when you use automation. This way you can scale your business growth.
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Handling Returns
Return tracking is an inconvenience of eCommerce. Most sellers allow customers to return purchased items that don’t fit, arrive damaged, or don’t work for other reasons. Repurchases can be boosted by a favorable returns policy.
Accepting returns as a reality of operating an online store is in your best interest. Returns, however, complicate your accounting process. Refunds are processed, and the returned product(s) may need to be restocked.
Careful attention to detail is the key to handling returns. For sellers, it’s important to decide whether or not to write off inventory so they don’t expense it twice.
Many inventory management systems feature returns management. Accounting software can also be manually updated to handle returns.
Manual Data Entry
Almost all items need to be tracked after every sale. This includes seller fees, local sales tax, shipping costs, inventory quantity sold, and more.
Manually entering all this information becomes overwhelming as a business grows. Consult with a firm offering small business accounting services to assist you.
It is possible to outsource this process to an accountant, but you might be surprised by the cost. The process of manually entering data is incredibly time-consuming and rife with errors.
Automating this process can help online retailers overcome this challenge. Ecommerce stores can be connected to your accounting solution by using accounting automation software.
In conclusion, small business owners face a range of small business accounting challenges, from cash flow management to tax compliance. However, by implementing effective bookkeeping practices, utilizing technology, and seeking professional help when necessary, these challenges can be overcome.
Proper accounting is key to the success of any small business, so it is important to prioritize and address any accounting issues that may arise. By taking proactive steps to manage their finances, small business owners can ensure the long-term viability and growth of their business.
You May Also Read: Tax Accountant Vs CPA- Understanding The Difference
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