...

The Complete Guide to eCommerce Accounting

/by

Managing an eCommerce business extends beyond the simple transaction of goods online. Unlike traditional businesses, eCommerce accounting involves unique challenges, like managing inventory costs, tracking marketing spending across multiple channels, and dealing with complex tax regulations. These complexities can leave you needing help to make sense of your finances and unsure of your business’s true performance.

An important part of managing an eComm business is understanding and visibility of the eComm financial ecosystem, emphasizing the chosen accounting approach.

This in-depth guide will explore the complexities of eCommerce accounting.. From outlining the pivotal role of proper financial oversight to pinpointing the tangible advantages gained from streamlined accounting solutions, this guide is a valuable resource for eCommerce entrepreneurs looking to fortify their financial foundations and propel their businesses toward enduring success and growth.

The Significance of eCommerce Accounting

Running a successful eCommerce business requires clear control and visibility of your finances. It’s easier to make smart decisions for your business with clear and organized accounting.

Think of accounting as your financial roadmap. It helps you track everything from who owes you money (receivables) to whom you owe (payables), expenses, and supplier invoices. This way, you have a clear picture of your cash flow and can make informed decisions about your business, like how much to invest in inventory or marketing.

Investing in a proper accounting system that can handle the increasing complexity as your business grows is crucial. This will save you time and headaches, allowing you to focus on what matters most: growing your business.

Your eCommerce business needs insightful accounting to understand its health. It goes beyond simply keeping track of numbers. Understanding your numbers empowers you to make smart decisions. You can see where your money goes so that you can invest wisely. Accounting also helps you forecast your short-term and long-term income to plan effectively.

Good accounting helps you stay on top of taxes and avoid penalties. This frees up your time and energy to focus on what matters most – growing your business!

Accurate bookkeeping and accounting are your secret weapon against wasted spending and missed opportunities. By combining powerful analytics with your everyday bookkeeping, you will gain valuable knowledge about your business and unlock insights about your customers.

These insights are like gold. They’ll help you become laser-focused on strategies that resonate deeply with your target audience, leading to more meaningful connections and scaling your business.

That’s not all. By knowing your financial data, you can identify areas where your business can become efficient: streamlined operations, reduced costs, and more efficiency.

Plus, having all your financial data in one place gives you a clear bird’s-eye view of your business. This means you can make data-driven decisions perfectly aligned with your customers’ wants and market demands.

Understanding E-commerce Accounting: Your Guide to Profitable Decisions

E-commerce accounting might sound intimidating, but it’s ultimately about understanding your financial data to make smart business decisions that boost your profits. It helps you answer questions like:

  • How much money is coming in and going out?
  • Where can I make cuts without impacting my sales?
  • Am I investing in the right marketing channels?

Here’s a breakdown to make things easier:

Think of bookkeeping as the “how” and accounting as the “what” of your finances. Bookkeeping involves recording and managing daily transactions, like sales, expenses, and payments. Accounting analyzes that data to tell you the “what,” like your overall profitability and growth potential.

The foundation of good accounting is accurate bookkeeping. If you categorize and track your transactions correctly, the insights you get from the data will be reliable. This can lead to missed opportunities or even costly mistakes.

There are two main accounting methods: cash-basis and accrual.

  • Cash-basis accounting: Records income when you receive payment and expenses when you pay them. This is simpler and often used by startups.
  • Accrual accounting: Records income when it’s earned (even if not received yet) and expenses when incurred (even if not paid yet). This provides a more accurate picture of your business’s financial health but is also more complex.

The next section will delve deeper into bookkeeping practices for e-commerce businesses. We’ll explore how to keep your financial data organized and ready for valuable analysis.

Improving Your eCommerce Accounting

Insights into cash flow and comprehensive reporting capabilities are vital for eCommerce businesses to understand their financial health, monitor performance, and identify opportunities for improvement. This level of insight is especially important in the dynamic and fast-paced eCommerce environment, where quick and informed decisions can greatly impact growth and success.

Scalability for Sustainable Growth:

Some robust accounting solutions cater to both new and established businesses. Look for features that can adapt and grow alongside your company. This eliminates the need for major overhauls later on, allowing you to focus on scaling your business seamlessly.

Streamlined Processes and Reduced Errors:

Many platforms offer automated transaction tracking features. This saves you valuable time and reduces the risk of human error in recording sales and expenses.

Navigating Tax Complexities:

E-commerce businesses, especially those operating across state lines or internationally, often face complex tax requirements. Look for solutions that offer tax assistance features to help you stay compliant and avoid unnecessary complications.

Gaining Clear Financial Insights:

Comprehensive reporting capabilities and clear cash flow insights are crucial for understanding your financial health, monitoring performance, and identifying areas for improvement. This is especially important in the fast-paced world of e-commerce, where quick and informed decisions can significantly impact your success.

Multi-Channel Integration for Effortless Data Management:

Managing finances across multiple sales channels can be time-consuming and error-prone. Look for solutions that integrate seamlessly with popular e-commerce platforms like Shopify, Amazon, and eBay. This allows you to systematically consolidate and analyze your financial data from various sources, ensuring accurate and comprehensive financial visibility across your entire business.

In conclusion, choosing the right accounting tools empowers your e-commerce business to manage finances efficiently, gain valuable insights, and fuel sustained growth in the competitive landscape. Explore your options and find the solutions that best suit your needs and goals.

Practical Tips for Immediate Implementation

  • Employ Cash Basis Accounting: This beginner-friendly method simplifies record-keeping by tracking transactions when cash moves, making tax preparation easier.
  • Monitor and Categorize Transactions: Automate this process using accounting software to improve accuracy and potentially save tax through precise expense categorization.
  • Synchronize Sales Channels: Integrate transactions from various platforms into a single database for easier financial oversight and analysis.
  • Automate Tax Calculations: Simplify complex tax requirements across jurisdictions by leveraging accounting software capabilities.
  • Distinguish Chargebacks and Returns: Track and categorize these accurately for proper financial recording and analysis.
  • Generate Detailed Reports: Utilize robust reporting features to gain insights into your business, analyze performance, identify trends, and make informed strategic decisions.
  • Integrate Budgeting and Forecasting: Employ budgeting and forecasting tools within your accounting software to gain insight into future financial projections for informed business decisions. This helps plan for future investments, expansions, and potential challenges.
  • Utilize Inventory Management: Leverage accounting software’s features to track stock levels, manage inventory across locations, and optimize stock control. This ensures effective inventory management, accurate financial reporting, and informed purchasing decisions.
  • Automate Invoice Generation: Automate sending and generating invoices through your accounting software, saving time and ensuring accuracy, professionalism, and, ultimately, improved cash flow and client satisfaction.
  • Track Expenses Meticulously: Use your accounting software to track and categorize business expenses meticulously. This helps identify cost-saving opportunities, ensure compliance with tax regulations, and facilitate accurate financial reporting.

Long-Term eCommerce Accounting Strategies

Detailed Accounting Reports: Regularly analyze reports to gain insights into sales trends, profitability, and inventory management.

Cash Flow Management: Monthly cash flow statements offer a clear view of financial health, highlighting areas for potential improvement.

Scalable Accounting Policies: Regularly review and adjust your accounting practices to accommodate business growth and expansion, ensuring your systems can scale with your business.

Integration with CRM Systems: Integrate Xero with Customer Relationship Management (CRM) software to gain a comprehensive understanding of customer behavior and preferences, enabling targeted marketing strategies and improved customer engagement.

Advanced Data Analytics: Leverage Xero’s advanced analytics capabilities to delve deeper into financial and operational data, gaining profound insights for strategic planning, forecasting, and enhanced decision-making.

Next Steps with Xendoo

The next steps involve implementing your newfound understanding of e-commerce accounting to streamline your processes and unlock even greater efficiency and visibility for your business. By harnessing the synergy between robust bookkeeping and your online sales platform, businesses can optimize efficiency and lay the groundwork for sustained success in the dynamic eCommerce landscape. Let Xendoo help you remove the guesswork and embrace the power of data-driven e-commerce accounting. It’s time to build a business that’s agile, responsive, and ready to crush its goals.

Tax Preparation for E-commerce Businesses

/in , , /by

In the fast-paced world of e-commerce, success hinges on the quality of products and services and adept financial management. With tax season approaching, maintaining accurate financial records becomes imperative. With potentially complicated regulations and potential deductions, e-commerce entrepreneurs face unique challenges in tax preparation. This comprehensive guide aims to demystify the process, offering tailored insights and strategies to navigate the intricacies of tax compliance and optimization. From understanding the nuances of e-commerce taxation to harnessing technology for streamlined accounting, every aspect of tax preparation is explored to empower businesses to maximize their financial efficiency. As the digital marketplace continues to evolve, staying ahead demands a proactive approach to financial management, making this guide an indispensable resource for e-commerce ventures striving for sustained growth and success.

Understanding E-commerce Accounting Basics

Understanding the basics of e-commerce accounting is fundamental before diving into specialized areas like tax preparation for e-commerce businesses. Online enterprises face distinctive challenges, including fluctuating sales volumes, complex inventory management across multiple platforms, and diverse payment gateways – dynamics beyond traditional brick-and-mortar establishments’ scope. Implementing a robust accounting system that seamlessly integrates with the e-commerce platform is crucial. This integration provides invaluable insights into the business’s financial health and streamlines the tax preparation process. Real-time sales data, inventory tracking, and transaction details, all enabled by a comprehensive e-commerce accounting system, are essential components that aid in accurate tax reporting and compliance. By embracing the nuances of e-commerce accounting and implementing systems that facilitate efficient financial management, businesses can lay a strong foundation for effective tax preparation, ensuring adherence to legal requirements and promoting sound financial decision-making within the digital marketplace.

Navigating Tax Regulations for E-commerce Ventures

Navigating the realm of e-commerce taxation entails grappling with a multifaceted landscape governed by various local, state, and federal regulations. Staying abreast of evolving tax laws impacting e-commerce operations is vital to avoiding costly penalties and audits. The complexities range from determining sales tax nexus to local or international tax obligations, making it essential for e-commerce entrepreneurs to seek guidance from qualified tax professionals. Such professionals possess the expertise to offer invaluable insights into the intricacies of e-commerce taxation, ensuring businesses remain compliant while effectively navigating the complexities of the evolving tax landscape. By drawing on their specialized knowledge, e-commerce ventures can mitigate risks, proactively address tax-related challenges, safeguard financial stability, and promote sustained growth within the digital marketplace. Informed decision-making rooted in the expertise of tax professionals thus becomes a critical asset in fortifying e-commerce ventures against potential taxation pitfalls.

Maximizing Deductions and Credits

Owning an e-commerce business presents the advantage of accessing a myriad of deductions and credits to offset taxable income. Diligent record-keeping is instrumental in harnessing these benefits, encompassing expenses related to website development, digital marketing, and shipping and fulfillment costs. Leveraging such deductions and credits allows e-commerce businesses to maximize tax savings, enhancing financial health and operational efficiency. Furthermore, embracing tax incentives like the Research & Development Tax Credit can provide e-commerce businesses a competitive edge while reducing tax liabilities. Businesses can optimize their tax position by strategically identifying and capitalizing on applicable deductions and credits, effectively reducing their tax burden and enhancing their overall financial standing within the digital marketplace.

Harnessing Technology for Seamless Tax Preparation

Advancements in financial technology have revolutionized the landscape of tax preparation for e-commerce businesses, sparing entrepreneurs the arduous task of sifting through mountains of receipts and spreadsheets. The digital age offers access to tools and software explicitly designed to streamline tax preparation processes. Cloud-based accounting platforms like QuickBooks Online are instrumental in aggregating and organizing financial data, while specialized e-commerce tax software such as TaxJar caters to the unique tax requirements of online businesses. Harnessing these technological resources saves time, minimizes errors, boosts efficiency, and provides business owners with accurate insights into their financial health. Implementing contemporary technology does more than simplify tax preparation; it empowers businesses to make informed decisions and promotes sustained growth within the competitive e-commerce landscape. By embracing these digital solutions, e-commerce ventures can ensure meticulous tax compliance while freeing resources to focus on core business aspects, ultimately fostering operational efficiency and financial stability within the digital marketplace.

Proactive Planning for Future Success

Strategic tax planning extends beyond mere compliance, playing a pivotal role in the long-term success of e-commerce ventures. By proactively forecasting cash flow, analyzing financial metrics, and projecting tax liabilities, entrepreneurs can make informed decisions that optimize profitability and fuel sustained growth. Through regular consultations with a tax advisor, businesses gain invaluable insights into tailor-made, tax-efficient strategies aligned with the distinct needs of e-commerce enterprises. Proactive planning facilitates the optimization of tax liabilities and supports effective financial decision-making, positioning businesses for resilience and growth within the digital marketplace. By leveraging strategic tax planning, e-commerce businesses can harness their financial resources more effectively, fortify their position amidst evolving taxation landscapes, and pave the way for sustained success and innovation in the competitive e-commerce sphere. Embracing proactive tax planning thus serves as a proactive investment in the future financial health and stability of e-commerce ventures.

Conclusion

Navigating the nuances of tax preparation for e-commerce businesses may seem daunting, yet with the right guidance and proactive planning, it becomes entirely manageable. Mastering e-commerce accounting basics, ensuring compliance with tax regulations, maximizing deductions, harnessing technology, and implementing strategic planning are pivotal steps toward positioning businesses for sustained success within the ever-evolving digital landscape. When it comes to taxes, knowledge is power – so it’s imperative to equip yourself accordingly and pave the way for a prosperous future. For comprehensive support in tax preparation and e-commerce accounting, consider leveraging the expertise of professionals at Xendoo.com. Xendoo’s knowledge and experience, Xendoo.com provides tailored solutions to optimize tax efficiency and financial management for e-commerce businesses, ensuring sustained growth and operational stability within the digital marketplace.

Standing Out in a Crowded Market: How to Differentiate Your Business in a Competitive World

/in , /by

Undoubtedly, part of owning a business is understanding that you may face high competition and crowded industries. Knowing how to make your business stand out and what sets it apart from the competition is vital to keep it from fading into the background. In other words, you need to know what sets your business apart to sell. And once you figure that out, you’ve got to shout it from the rooftops.

 

What Exactly is a Differentiator?

The basic definition of a differentiator is a unique set of benefits that sets your business apart from your competition. Understanding what you are good at and highlighting those qualities shows your customers why you are worth putting above your competition and spending more on your product.

Overall, differentiators validate your customers in their purchase, and a person who feels confident in their purchase is more likely to continue purchasing from you in the future.

Types of Differentiators

Though understanding what you’re good at may sound easy, it can be tricky to figure out.

Your company can have many types of differentiators. Some of the more popular differentiation factors are based on the customers’ experience, the price of your product, or even your specialization for a specific target market or industry. Pricing your services effectively can also be a powerful differentiator.

Say your company’s differentiator is the experience you give your customers and the personality of your business. If you go above and beyond to give your customers a great experience when they are shopping, they’ll remember it. In the best-case scenario, they will tell their friends about how friendly your employees are and how great of an experience they had.

Another example could be your expertise in serving a very specific target audience. Say you own a marketing agency that specializes in serving law firms. When a law firm looks for a marketing agency, it’ll appreciate finding one with lots of experience in its field.


Questions to Ask to Help Identify Your Differentiators?

Having trouble putting your finger on what makes your business special? Don’t worry. We have some simple tips and tricks that can help you.

Ask yourself what you do that your competition does not.

This is a chance to do market research and analyze how your competition works. Take a look at how they’re advertising themselves. What do they highlight most? What don’t they talk about? Next, list everything your business does that others aren’t talking about (or that you know they don’t do well). Then, write down a list of all the ways you overlap with your competition. Writing down your similarities and differences is a quick and simple exercise that can have long-term benefits and lead to a quick conclusion about your differentiators.

 

Ask yourself what your customers get from choosing your business. This is another way of saying you must be familiar with your customer’s experience.

Customer experience: The interaction between a business and a customer over their entire relationship.

Map out your company’s entire customer journey. What happens from the first time they hear about your brand through when they become happy, loyal customers? Putting yourself into your customer’s shoes shows you what they’re experiencing as they engage with your business and what benefits they see. From here, you can ask yourself:

What type of customers do you help?

What are your customers happiest about?

 

Still Having Trouble? Go Straight to the Source

Asking your loyal customers what benefits they get from your products or services may be the easiest way to determine your differentiators. Going straight to the source gives you a foolproof and immediate answer that helps you avoid making educated guesses.

You might ask them:

  1. Did you meet their expectations?
  2. Where did you exceed their expectations?
  3. Why did they choose you over your competition?
  4. What do they like about your business?

 

Got Your Differentiators? Now Brag About Them

Knowing how to use your key differentiators is just as important as determining them. Communicating these with your current and potential customers will help them understand how you will help them and what your business stands for. This starts by living and breathing your differentiators. Ensure everyone on your team knows what your business stands for and how you want to portray that through them.

 

The best part of understanding your differentiators is you can use them in your marketing strategy. A solid marketing plan will be useful when capitalizing on your company’s strengths. Highlight these differentiators when creating ads, posting on social media, and talking about your brand, which will let people know what you stand for and offer them. Also, a well-executed marketing strategy will give you a competitive advantage in your industry.

Overall, the real importance of differentiation in your business is to stand out and let your customers know what they are getting when using your product. Every few years, you must take a step back and reevaluate the importance and relevance of your company’s differentiators. They might change or stay the same, but keeping them core to your business can put you above your competition.

 

About Xendoo

We share your passion for small businesses and are inspired by your dedication to making your dreams a reality. That’s why we’re committed to providing you with the financial visibility and support you need to thrive.

More Than Just Numbers

It’s more than simply crunching numbers. It’s about building meaningful relationships with our clients and understanding their needs. Our people-first mentality ensures you receive personalized attention and expert guidance throughout your financial journey.

A One-Stop Solution

Xendoo offers a comprehensive suite of services, including:

  • Full-service bookkeeping and accounting team to free up your time and resources.
  • Hassle-free tax preparation and filing 
  • Fractional CFO Services to work with you on a  roadmap of future growth
  • A dashboard that provides real-time financial insights

Passionate about your success? Xendoo is, too. We provide the financial visibility and support small businesses need to thrive and scale. Let us handle the financial burden so you can focus on what matters most – running your business and achieving your goals.

Contact Xendoo today and discover how we can give you time back to grow your business.

 

 

Cash vs. accrual accounting: Which is right for your business?

/in , , /by
a person using a calculator

In accounting, there are two primary methods—accrual and cash basis. The main difference between accrual vs. cash accounting is in how and when you record income and expenses in your books. Each accounting method has advantages and disadvantages. 

If you’re not familiar with accrual vs. cash basis accounting, we’ll help you understand what they mean, how they differ, and how they impact your finances.

We’ll also briefly go over a third option—modified accrual accounting—a hybrid of the two.

Table of contents

Choosing the right method for your business

To help you decide between accrual and cash accounting—or a hybrid of the two, you can use the comparison table below. 

Cash Modified Accrual
Simplest accounting method Flexible accounting method Most complex accounting method
Best for service-based businesses Best for companies that carry some inventory Best for companies that carry a lot of inventory
Small businesses Growing businesses Large and public companies

Some business owners start out using cash basis accounting, then switch to hybrid or accrual accounting. You can always switch later, but you may want an accountant to help you transition. We’ll go into each method in more detail below to help you decide. 

What is cash basis accounting?

Cash basis accounting, the simpler of the two accounting methods, records transactions when cash changes hands. In other words, you report income when you receive cash and record expenses when you pay your bills.

Since you only record transactions when you receive money, cash basis accounting doesn’t include accounts payable and receivable. You don’t account for sales customers made on credit (receivable) or business purchases you made on credit (payable).

Benefits of cash basis

The cash basis accounting method is a popular choice for small business owners because it’s simple. Here are other benefits of cash accounting: 

  • It’s a straightforward approach that gives you tax-ready finances.
  • Managing taxes and cash flow can be easier because you pay taxes when you receive money, not when you send invoices. 

Limitations of cash basis

  • It’s not as accurate as accrual accounting
  • It may not provide meaningful insight into your profitability.
  • Some businesses can’t use cash basis accounting because it doesn’t meet Generally Accepted Accounting Principles (GAAP).

Cash accounting example

Let’s look at an example to help you understand the cash accounting method.

Say your company sells a product to a customer in December 2022, but you don’t receive payment until January 2023. 

Even though you sold the product in December of 2022, you’ll record the transaction as a sale in January 2023, when you receive payment. That “sale” becomes part of 2023 for tax and reporting purposes, even though you technically made the sale in 2022. 

What is accrual accounting?

In accrual accounting, you record income (sales) and expenses when the transaction occurs, regardless of when the payment happens. 

Simply put, you record every transaction twice through debits and credits. This gives you a more accurate picture of your gross profit and your net income. 

Admittedly, accrual accounting is more complex and requires more time than cash basis accounting. However, it gives you a clear view of your profitability to help you make informed business decisions. Often, if you’re looking to exit or sell your company, you must use accrual accounting.

Benefits of accrual accounting

Many companies choose the accrual accounting method because it’s more accurate than the cash basis method. Here are the main benefits of accrual accounting: 

  • It gives you a thorough and accurate record of your company’s profitability and financial health.
  • Accrual accounting follows GAAP, and publicly traded companies must use it.
  • It’s easier to do financial projections and reporting like cash flow statements.

Downsides of accrual accounting

  • It requires more detailed record-keeping and can be difficult if you don’t have accounting experience.
  • It’s a more time-consuming method because you need to match up the numbers within set time periods. 
  • With accrual, you pay tax on all your business’ sales, regardless of whether you’ve actually received the money for the transaction yet.

Because it’s more complex, many businesses use online bookkeeping and accounting services to handle accrual accounting for their business. 

Accrual example

Let’s use the example from earlier but record it with accrual accounting.

Your company sells a product to a customer in December of 2022, but you don’t receive payment until January 2023. 

Using the accrual method, you’ll record the sales transaction as revenue in December. You’ll also include the transaction when you file your 2022 business income tax return.

Additionally, you would ensure the cost of the product (COGS), regardless of when you pay for it, is also included in December. This provides accurate gross profit to better understand your pricing’s efficiency.

Differences between accrual vs. cash basis

We’ve talked about some of the top differences between cash and accrual accounting. The comparison chart below recaps what we’ve highlighted so far.

Cash Basis Accrual
Records transactions when you receive money or when you pay money (expenses) Records transactions when they happen, regardless of when you receive or make payments
Does not include accounts payable and receivable Uses accounts payable and receivable
Is simple, but not as accurate Is complicated, but more accurate
Cash flow is simpler to track Cash flow may need more adjustments
Taxes are due on the money you receive during the tax period Taxes are due when you earn income during the tax period

Modified accrual (hybrid accounting)

Modified accrual accounting is a hybrid method that combines parts of cash basis and accrual accounting. Because it combines the two, you can customize it based on your business needs.

For example, some companies record short-term transactions using the cash method but record long term-transactions using the accrual method.

Benefits of modified

  • It gives businesses a clear picture of their financial health.
  • You can tailor the modified method to fit your business needs. 
  • Compared to full accrual accounting, it’s easier to do. 

Downsides of modified

  • It’s more complex than cash and requires more effort to implement and maintain.
  • It focuses more on short-term cash flow, so you may not get the full picture of your long-term financial health. 

Modified accrual example

Let’s use a business that sells goods and services as an example of how modified accrual accounting works.

Under modified accrual accounting, the business would record a sale when they receive payment from the customer, regardless of when the customer placed their order.

On the other hand, they would record expenses (like purchasing inventory) as soon as they place their order, even if their payment isn’t due until later.

How Xendoo helps with accounting

Understandably, choosing between cash, accrual, or hybrid accounting can be challenging. Although choosing the method to record your business finances is an important decision for your financial health, it’s not the most exciting one. 

Many entrepreneurs partner with online accounting services like Xendoo to handle their business finances. With Xendoo, your bookkeeping, accounting, and taxes are all under one roof. Plus, we’re familiar with cash, accrual, and modified accrual accounting. 

If you’re unsure which accounting method is right for your business, reach out to schedule a call. Our accounting experts will get to know your business and identify which services you need, including the accounting method.

 

 

Ecommerce Accounting 101

/in , /by
differentiators of your business

Crunching numbers may not be your forte, but every online business needs a strong eCommerce accounting plan. You’ll thank yourself later for enlisting some help to record and analyze your revenue, expenses, debts, and deductibles.

Tracking your financial matters helps you understand the health of your business and ultimately allows you to make decisions based on real numbers, not just feelings.

Ecommerce businesses face their own unique set of challenges—retaining customers and finding the right mix of technology, to name a few. Then there are the complicated tax matters that arise when you sell across state lines. Another key decision you might face is whether to continue expanding or consider selling your Shopify store. This decision requires a thorough understanding of your financial standings to ensure profitability in such transactions.

Whether your business is exclusively online, or you also sell products in a brick-and-mortar shop, read on to learn how accounting for eCommerce can help you streamline and grow.

Bookkeeping and accounting for eCommerce

Bookkeeping and accounting are often used interchangeably, but they are not the same. Both are important for maintaining the financial strength and sense of order for an online business.

Bookkeeping is the process of accurately recording all of your business transactions. You will track sales and returns, all payable invoices, receipts for materials costs, and more. Bookkeeping records and codes all money that comes in and out of your business.

Accounting professionals then use that information to file taxes and generate reports that help you understand the past and plan for the future. Once your bookkeeping professional has collected financial data, they may pass it to an accountant who can analyze it and provide insights. For instance, bookkeeping means recording every sales transaction. Accounting means creating a report that determines your sales trends and profit margin.

Types of accounting software

Ecommerce accounting is taking place in the 21st century, and your software should reflect that. While desktop software may work for a very young company with a handful of sales, a cloud-based option is the only viable long-term solution. Desktop software works on your hard drive and may involve spreadsheets. Online accounting software—also called cloud accounting software—is much more dynamic and can integrate with a variety of accounting tools and payment platforms.

Outdated desktop software that can’t integrate with your payment platforms or other online tools can lead to a few problems.

  • Limited access: You can only access your data from the one computer where the software is licensed.
  • Outdated operation: Desktop software rarely offers access to the same conveniences that an online program can. And, if something breaks in your desktop software, you may have to replace it or redownload the program — which is a headache.
  • Hard to back up: If something were to happen to the device where your information is stored, you risk losing all of your financial records.

Online accounting software like Xero or Quickbooks has a few distinct advantages for online businesses.

  • Constant availability: A cloud-based software can be accessed 24/7 from any device with Internet access, by more than one person.
  • User controls: You can restrict access for different users so they only see the information needed to do their jobs.
  • Integration: It’s easy to link directly with bank and credit card accounts, inventory, and payroll systems.

How do you do eCommerce accounting?

Keep in mind that an online business has all the accounting obligations of a brick-and-mortar store, plus additional factors. For instance, an in-person store with one location doesn’t have to wonder about which state’s sales tax applies to their goods. An eCommerce business also has a lot of website maintenance costs and will probably work with more payment vendors than a traditional business.

Here are some fundamentals to get you started with accounting for your eCommerce enterprise.

Set up business accounts and tax information.

First things first: your business should have separate business bank accounts. This makes tax time much easier because the IRS will have more clarity about which of your finances are personal and which are business-related. If you set up an LLC or corporation, the IRS requires you to keep a dedicated business bank account. Sole proprietors are not legally required to do this, but it is still recommended. Your business should also apply for an Employer Identification Number (EIN) for tax and payroll purposes.

Find a way to get paid.

As an online business, no one is handing you cash to make a purchase. This is the good news and the bad news. You have more payment options available as an online vendor, ranging from Apple Pay and Shop Pay to credit cards and PayPal. You also have a more complicated road to navigate. You’ll need to figure out which payment platforms are right for you based on customer demand and merchant fees (which you’ll be responsible for). Once you choose payment methods, you’ll add the appropriate widgets to your website checkout process.

Research your tax obligations.

Ecommerce businesses that are selling products across state lines need to figure out which sales tax they are responsible for. In some states, an online store charges sales tax based on where the company is located. There are 12 origin-based states, including New Mexico and Virginia. All other states have destination-based rules for online stores. That means you must charge sales tax based on the address you are shipping to.

Establish a general ledger.

Your online business requires a general ledger. This vital document tracks every single income and outgoing transaction. It gives you a real-time look at what you’ve spent and who has paid you. As an online business that can make sales around the clock, leveraging online software to keep an accurate ledger is smart. Your ledger helps you make growth projections and identify areas of overspending.

Track cash flow.

In addition to your company’s income statement, which tracks revenue vs. expenditures over a period of time, you’ll want to generate cash flow statements. This report specifically reveals cash inflows and outputs. You want to have more cash coming in than what is going out. This ensures you earn a profit and can cover any current debts.

Run regular bank reconciliations.

Banking mistakes can really add up, especially if there is an underlying issue. You’ll want to compare your internal transaction reports with your bank account. A major discrepancy could mean that your website is not charging the correct amount or that you have not actually received money for all accounts receivable marked paid.

What does an eCommerce accountant do?

An accountant will take your bookkeeping figures and generate useful reports. They can offer meaningful insights based on your current sales trends and anticipated expenses. For instance, a great accountant may be able to predict an increase in shipping costs or notice that certain materials cost more during the summer months. They can tell you when you have the funds to hire a new employee or when you should cut back on overtime pay.

An eCommerce accountant may also look for ways to lower the cost of goods sold to increase your profit margin. And, based upon the contents of your balance sheet (which track assets, liabilities, and shareholder stake) your accountant may be able to recommend a debt pay-off schedule based on your current revenue.

You will come to rely on your accounting staff to guide you in your business planning. You don’t want to scale your online business too quickly. If you start offering more products online before you can handle the increase in shipping expenses or have the staff box the products, you could end up over your head.

When your small business is just starting out, using accounting software on your own may be a realistic option. Soon you will need assistance. As soon as you notice your accounting duties are taking away from your research and development or other essential duties, it’s time to call in reinforcements.

Xendoo handles everything from catchup to taxes to daily bookkeeping. We will pair you with an expert who knows about your industry and can deliver timely financial updates. Our team is invested in your success and you’ll be working with real people who become trusted partners to your internal staff. You can go back to doing what you love and leave the numbers to us.

Online inventory management

Traditional inventory management is often a tangled web of ordering, receiving stock from suppliers, storing and tracking that stock, and monitoring sales. This means lots of manual data entry into a number of systems.

By connecting your eCommerce accounting software with an inventory management system, you can streamline your inventory tracking process. Linking the two systems ensures that financial information is updated automatically as inventory changes. Instead of spending hours counting supply, the information about stock automatically flows from your inventory software to your accounting software, recording everything from revenue to tax. This saves you time and money.

Chart of accounts for eCommerce

A company’s chart of accounts refers to the categories you use to code different types of transactions. It is often helpful to create high-level categories and sub-categories. Many businesses identify assets, liabilities, and shareholder equity at the highest level of their chart. Your sub-categories encompass transactions like online sales, returns, chargebacks, and shipping costs, among others.

As an eCommerce business, you will have some unique sub-categories that other businesses don’t. Inventory storage, out-of-state taxes, eCommerce platform costs, delivery expenses, website copyediting, and other expenditures will need to be tracked for accurate accounting.

Numbering your chart of accounts creates an organized methodology for coding your transactions. For example, you may code Amazon sales as 00001, a credit. Amazon discounts might be 00002, a debit. Coding your transaction categories numerically helps an eCommerce accountant maintain a ship-shape ledger. Many programs will categorize any important transactions automatically, saving you a ton of time.

Another important aspect of your chart of accounts is noting which expenses are tax-deductible. The IRS allows you to deduct a variety of business expenses that are ordinary and necessary. You may miss out on ways to lower your business’ tax bill if you overlook a deductible expenditure.

By setting up your chart of accounts to be tax-ready from the start, you set yourself up for success with sales tax compliance and can maximize your deductions.

Tracking sales tax

If you sell products online or have multiple fulfillment locations, keep in mind that various Internet sales tax rules may apply to your business. And if you also sell your products through a brick-and-mortar location, separate sales tax regulations will apply to those transactions.

Sales tax can also be a tricky business for Fulfillment by Amazon (FBA) sellers. If you store inventory in an Amazon Fulfillment Center, you will owe sales tax in that state along with the state where you operate. Yes, it can get tricky pretty quickly.

Make sure your software can handle the latest tax laws for online sales. You also want to work with accountants and advisors who are up to date on all of the particular sales tax rules that apply to your e-commerce business so you can stay compliant and avoid costly penalties.

IRS penalties add up. Not only does the government fine you for failing to pay or collect adequate state taxes, but you will pay interest on your penalty. The best thing you can do for yourself is find an accountant well-versed in the complex tax situations online stores encounter. You may need a seller’s permit to collect sales tax from another state or encounter other unexpected paperwork. A professional will get it sorted out for you.

At Xendoo, we understand the unique challenges eCommerce businesses face. That’s why Xendoo CPAs stay up to date on all the latest regulations so you don’t have to. To see how Xendoo can help you with your e-Commerce accounting, you can schedule a free consultation today.

Editors Note: This post was updated on March 21, 2022, for accuracy and comprehensiveness. 

 

Ecommerce Bookkeeping Services: What to Consider

/in /by
ecommerce bookkeeping services

It can be overwhelming for small business owners to choose from all the ecommerce bookkeeping services out there. Many small businesses trust Xendoo with their financials, but we understand that choosing the best bookkeeping and accounting solution is a big decision. 

When running an online store, there are many financial considerations and challenges, including payments, customer returns, shipping logistics, and inventory management.

Whether you use accounting software to do your bookkeeping or work with an ecommerce bookkeeping service, your solution needs to keep up with the many complexities of ecommerce. Alternative sales, inventory management, sales tax, shipping, merchant fees, foreign sales, and multiple currencies are just a few.

This article will look at what bookkeeping features online businesses need and how to choose an ecommerce bookkeeper.

What Is Ecommerce Bookkeeping?

Bookkeeping involves correctly organizing, categorizing, and storing your financial transactions to provide business insights and help with audits and taxes. 

Ecommerce bookkeeping is the same but addresses the unique needs of businesses that operate online. Because ecommerce businesses operate online, financial information is recorded digitally and integrated with accounting software. This can provide insight into how you make revenue and spend money. 

An ecommerce business has a lot of similarities to operating a conventional retail store but there are differences. Ecommerce accounting needs particular inventory and cash flow management. Small business owners understand that inventory is the base of their business and everything they do relies upon it. Due to this, many financial reports and documents focus mainly on your inventory, but there’s much more.

Top Considerations When Choosing Ecommerce Bookkeeping Services

You don’t want to invest in a bookkeeping solution that does not fit the needs of your ecommerce setup. What are the most important factors to consider when choosing ecommerce bookkeeping services?

1. Types of Ecommerce Platforms

With the ever-changing digital economy, there’s a high chance that you will sell products across multiple platforms at one point in time. The ecommerce platform that you use depends on your unique needs, but some features are non-negotiable. 

For example, ecommerce businesses need to be able to track and update inventory in real-time for online customers. It becomes almost impossible to fulfill consumer demand if you cannot track inventory across various sales platforms. 

Prioritize an ecommerce platform that can scale with your business. As your business grows, your ecommerce platform will need to provide more advanced features that save you time. A platform with features that allow you to centralize your business operations will significantly impact the stability and profitability of your business.

2. Cost of Merchant Fees

Since most ecommerce stores accept payments through third-party payment processors, there are various fees. For instance, when a customer makes a purchase with a credit card, you could incur merchant fees, also called transaction fees. 

Square, Stripe, and PayPal all charge transaction fees on sales. Platforms like Shopify have their own payment gateways that charge a merchant fee. It is the price of doing business. 

These fees are taken out for each purchase so they show up as net sales instead of gross sales. Gross revenue is the total amount of sales without deductions. Net revenue includes deductions from expenses. 

A bookkeeper may include merchant fees in your expenses. Solutions such as QuickBooks can help you manage and track those fees. For accurate records, identify a system that can track merchant fees while including them in your final statements and reports.

3. Accounting and Finance Features

Every business must have an accounting system. Financial reporting is crucial, and proper accounting systems will ensure your balance sheet is accurate. Otherwise, your business is at risk. The accounting software you choose will depend on what you want the system to deliver. 

Each solution comes with a different offering for collecting and tracking data. Here are the essential features that ecommerce businesses need.

Payment Processing

Ecommerce payment processing makes it possible to accept various methods of payment from customers online. Payment processors also provide security and fraud protection features. 

More payment options can translate to more customers and revenue. From an accounting perspective though, more payment options come with more sophisticated bookkeeping needs. 

As an ecommerce business, you might accept payments through debit cards, credit cards, PayPal, Affirm, Apple Pay, Google Pay, and even cryptocurrency. Accounting software should sync up with your payment processor to record ecommerce sales in real-time. 

It helps reduce billing errors by ensuring your account balance is up to date. It also helps save time because integrated systems don’t require manual data entry, making it easy to access your accounting records anywhere.

Returns, Refunds, and Exchanges

The National Retail Federation found that merchandise worth $428 billion bought online got returned in 2020. A clear return refund and exchange policy will encourage online shoppers to purchase. If you have many repeat customers, your return rate will probably be lower than average. The items you sell and your customers will determine your return rate. 

However, online businesses have to deal with customer returns and the cost that comes with them. For instance, returns can be expensive with Stripe. If you issue a refund for your customer, the processing fees that you had to pay for the original purchase are non-refundable. 

Returns can hurt your bottom line. Your ecommerce bookkeeping system should track the financial costs of returns, refunds, and exchanges. 

Inventory Management

Inventory management helps you know what products you have and their location. An inventory management system can help you get orders to customers on time, identify products you should restock, and automatically update your site when a product is out of stock. 

Accounting and inventory management systems should work together to help your supply chain run smoothly. Some ecommerce platforms have inventory management features built-in, so they will automatically track inventory for you. 

Amazon sellers can use Fulfillment by Amazon (FBA), a service that comes with inventory management and fulfillment. You would send your products to an Amazon warehouse, and they would fulfill the shipment and track inventory. Shopify businesses can use inventory tracking but fulfillment is separate. 

If you are like many ecommerce companies, you might sell your products on a combination of platforms, from Etsy, Shopify, and Amazon. 

This is where inventory management gets complicated. An ecommerce accountant can advise you on how to set up an accounting system that integrates with your inventory management. This way, you’ll have your inventory in one place. 

Shipping Fees

Most small business owners don’t know whether to charge or not to charge shipping fees. According to the Baymard Institute, additional fees can be deal-breakers because most shoppers checkout due to high shipping costs. 

Shipping fees are one of the most common ecommerce accounting struggles. The price that customers pay you for shipping may not be the same as the price that freight and delivery services charge you. 

When you send products to customers, you pay shipping fees. The shipping fees that customers pay, may be more or less than the actual cost of shipping depending on location, weight, and more.

These shipping fees are not included in the costs of goods sold (COGS). They are recorded as expenses. 

On the other hand, the packaging you use to ship your products is considered COGS. An ecommerce bookkeeper can help you navigate COGS and expenses. Plus, track and record your shipping costs accurately. 

Foreign Sales and Payments

Many business owners make the common mistake of choosing a bookkeeping solution that doesn’t support foreign sales. This could be a problem if you decide to expand your company globally. 

You can reach more customers and create more income potential when you sell in multiple countries. However, foreign sales have specific bookkeeping requirements. 

The biggest one is managing conversion rates for foreign currency. When a customer makes a purchase in another currency, you’ll need to reconcile the sales. Currency exchange rates change constantly. 

There is a date when someone makes an order and when that payment is processed or settled, so the exchange rate could change during that time. If that’s the case, it should be recorded as a gain or loss. Without an experienced bookkeeper, foreign sales could create discrepancies in your books.

Sales tax

You collect sales taxes with every purchase, but it has to be sent to the government. Sales taxes are not revenue, and your accounting system should automatically deduct those with each purchase. This way you can remit taxes, which means that you’re sending back the money that you owe to the government. 

Bookkeeping solutions make it easy to prepare sales tax without doing any guesswork. Good documentation for all deductions is essential to keep what you earn and not what you owe. Real-time tax reporting helps eliminate clutter and time wasted searching for receipts, reducing the stress of tax preparation.

How to Choose an Ecommerce Bookkeeper

Many businesses start looking for an ecommerce bookkeeper once they realize their books are a mess. It is usually a result of previous accountants and bookkeepers not understanding ecommerce accounting well. 

Here are a few factors to consider when choosing an ecommerce bookkeeper.

1. Ecommerce Accounting Experience

Money deposited from ecommerce platforms like Shopify or Amazon does not fully represent all financial activity. 

An experienced ecommerce bookkeeper should be aware of tools to connect financial data from Shopify, Amazon Seller Central, QuickBooks Online, and more. Plus, they’ll know how to integrate all the platforms that impact your finances and collect accurate financial data in one place. 

2. Accounting Software Integrations

Because ecommerce businesses use a wide range of software, they need to be able to pull all your financial data and integrate it into one central location. 

Your online accounting software should integrate with the main apps that you use to run your business. Apps that inventory, payroll, sales tax, and more can easily merge with online accounting software.

3. Reliability

Unfortunately, being a certified accountant does not always prove reliability. Before you partner with a specific bookkeeper, do prior research and read reviews. You can read reviews from past Xendoo clients here. 

You can also schedule a free consultation to talk to a bookkeeper. In a consultation, you can discuss your unique business needs and an accounting solution that fits them. 

The Best Ecommerce Bookkeepers

It can be stressful to entrust your business finances to someone outside the company. Using an ecommerce bookkeeping service can free up the time and resources your company needs to grow. If you have been thinking about outsourcing your bookkeeping, now is the right time. 

The best bookkeeping services include tax preparation, accounting software management, strategic planning, payroll, and more.

Xendoo goes a step further. We pair reliable accounting technology with a dedicated bookkeeper that can handle all your ecommerce accounting needs. Get started today with a free trial or schedule a consultation for your ecommerce bookkeeping.

 

How Do You Record eCommerce Sales in Accounting?

/in /by
Two people surrounding by boxes look at a computer

Many eCommerce owners understand the importance of making sales, but do you know how to record eCommerce sales for your accounting system? Ecommerce business owners have some degree of flexibility that physical storefronts cannot afford. Apart from avoiding rent, an eCommerce model makes it easy to fulfill orders from the comfort of your home or warehouse.

However, it can be challenging to set up an eCommerce bookkeeping system. No matter if you sell products online through Amazon, Shopify, BigCommerce, Walmart, or Etsy, you’ll need an eCommerce accounting system to manage finances. Recording sales is a big part of that.

What should you know about recording sales for eCommerce? Here is a complete guide for eCommerce businesses.

What is accounting for eCommerce?

Ecommerce accounting is the process of collecting and reporting financial data like business assets and transactions for online stores. Accounting provides the big picture of your financial health. Ecommerce bookkeeping is the daily management of your financial transactions including sales, expenses, and much more.

The first step in accounting for eCommerce is to organize your accounts. Ecommerce entrepreneurs and bookkeepers collect sales tax and financial statements. Accountants can use that data to help businesses make future business decisions. Accounting for eCommerce includes the following categories:

  • Bookkeeping (recording of business transactions)
  • Financial reporting
  • Submitting tax returns

How do you record sales in accounting?

It’s important to distinguish what it means to record sales vs sales tax. You record sales when a customer makes a purchase. Recording sales tax refers to the tax that customers pay upon purchasing goods and services. Businesses remit sales tax to the local or state government within the specified period.

Sales invoices are documents that provide records that show every sale made. They are usually pre-numbered to help bookkeepers and accountants know each invoice’s contents.

Even though recording sales and sales tax are two different things, they go hand in hand. For business owners to account for sales tax, they must first determine the cost of goods sold.

How do you manage eCommerce finances?

Many businesses have achieved success by simply adjusting how they manage their finances. Ecommerce can be unpredictable and highly competitive so having money to scale up your company and cater to necessary costs is crucial. Here is how to manage your eCommerce finances.

If you are just starting your eCommerce business, then there are key items you’ll need to set up first, including:

  • A business tax ID number
  • A business bank account and credit card
  • A payment processing system
  • Accounting software

Registering your company

As an eCommerce business owner, you are responsible for all areas of your business, including losses and debts. So, if you sell a defective product, you are personally liable.

Registering your company means that you will be operating your business as a separate entity from your personal assets. It also shows that you’re running a legitimate business and increases your brand awareness. Your business will have a company name rather than your own.

Setting up business accounts

To register your company with the state, you need to open a business bank account. A business bank account is a valuable asset for a small business because it helps to separate business activities from personal activities. Also, it is more professional to provide your clients with a business name when making payments instead of your full name.

Choosing payment processors

In the online world, consumers want multiple payment options. There are various payment methods that online shoppers use, including:

  • Credit cards
  • Direct debit cards
  • PayPal
  • Stripe
  • Digital currency

Ideally, you’ll want to integrate your payment processing system with your accounting software. This means you can save time manually entering sales and other financial data because the systems work together to pull most of the information you’ll need. It is still a good idea to keep track of your sales with a solid bookkeeping and accounting foundation.

Accounting Software

There are many choices for accounting software. For online businesses, it’s important to choose a solution that syncs with all your tools and platforms. Xendoo plans come with integrations like Xero, Quickbooks, and Gusto. You can sync up your payroll data from Gusto or track expenses easily by using Quickbooks.

What are the best accounting practices for online businesses?

Clear bookkeeping

For small businesses, up-to-date bookkeeping can be challenging. But online bookkeeping systems provide appealing solutions for different types of businesses.

Embracing these technology solutions is the best way to save your financial resources. An accounting system will help save time since you will be able to keep track of your finances.

Separate business accounts for finances

When setting up a business account, it’s important to separate your business and personal finances. Any sales revenue or client payments should go to your business checking account and not your personal bank account.

When all your finances are in one account, it is easier to keep track of the clients who have made payments. It’s also a good way to protect your personal finances from liabilities for your company.

Hire a virtual eCommerce accountant

Hire a bookkeeper with experience in eCommerce platforms like Shopify and eCommerce accounting to manage your day-to-day finances. A reputable bookkeeper will ensure your business stays on track by providing visibility over your cash flow.

Bookkeepers prevent errors by taking all your receipts, invoices, bills, and numbers and recording them correctly in your accounting system.

Virtual bookkeeping and accounting services are becoming more popular among small business owners. You can work with a professional to reconcile your accounts, update your financial statement, and do all the accounting functions without meeting in person.

With a committed bookkeeping team on your side, you can grow your business as you keep an eye on the latest eCommerce industry trends.

To get started, schedule a consultation with an accountant or sign up for a free trial to test out Xendoo today.

 

What Type of Accountant Does Your eCommerce Business Need?

/in /by
A woman writing and looking at images of shoes

Running an eCommerce business can sometimes feel like a juggling routine. You’ll have to stay on top of your transactions, inventory, administrative fees, and more. Chances are that your accounting and bookkeeping needs are low on your list of priorities, but that can come back to bite you.

Managing your own books may seem like a cost-saving strategy, but many online merchants lack the time or expertise to stay up-to-date and in compliance. Your eCommerce business requires the attention of an eCommerce accountant. 

Today, we’ll show you how partnering with an accountant that specializes in eCommerce can help your business to thrive.

Types of Accounting for Your eCommerce Business

One of the first financial decisions you’ll need to make is the accounting method you’ll use for your online business. There are two types of accounting practices to choose from: cash basis and the accrual method.

Determining which method is best for your company depends on several factors, which we’ll explore below.

Cash Basis Accounting

Cash basis accounting is the simpler of the two methods. In this method, you add an accounting entry every time money enters or leaves your bank account. Basically, you’ll be keeping a record of all your transactions, and this record will largely mirror your sales records and bank accounts.

The simplicity of this system is its greatest appeal, since it doesn’t require a lot of accounting knowledge or expertise. It’s actually a great eCommerce accounting strategy for startup businesses. 

You might consider this method if you:

  • Run a small eCommerce business
  • Run an Amazon FBA store
  • Produce products on demand

If your eCommerce store starts to grow, you can always switch to the accrual method down the line, though you may need to consult with an eCommerce accountant to help you with your books.

Accrual Method

In accrual accounting, you record your income and expenses as the transactions take place, regardless of when the money reaches or leaves your bank account. This may sound confusing, but it actually presents a more accurate picture of your company’s cash flow.

The accrual method can also help you make financial projections and better manage your inventory, since you’ll have a regular snapshot of your business activity. That is why the accrual method is generally recommended for larger or growing businesses. It can be particularly helpful when you’re juggling the various moving parts and pieces of running an online business.

The biggest drawback is that the accrual method requires a bit more attention to reconcile income and expenses, which is why you will benefit from the attention of an eCommerce accountant.

Which of these methods is right for your business? A professional accountant, who can provide guidance about the right accounting method to use for every phase of your business.

eCommerce Accounting Best Practices to Remember

Online merchants face some unique business challenges. Here are five of the best practices to use when you’re using accounting for Amazon stores and other online businesses.

Maintain a Budget

A budget is the summary of all of the income and expenses associated with your business. Keeping track of this data is a challenge for any business owner, but eCommerce bookkeeping demands that you keep track of such expenses as:

  • Administrative fees
  • Warehousing fees
  • Shrinkage (inventory lost or damaged)
  • Returns and chargebacks

Staying up-to-date with your books is crucial to understanding the financial health of your business. An eCommerce accountant can help you stay current, while also providing reports to optimize your cash flow and help you grow.

Distinguish Between Returns and Chargebacks

Many online retailers fail to distinguish between returns and chargebacks. The difference is actually quite simple:

  • Returns: A customer may return merchandise for store credit or a full refund
  • Chargebacks: A customer disputes a charge, claiming it was fraudulent

If you give a customer store credit, the original transaction should be listed as an expense and added to your accounts payable list. 

Both refunds and chargebacks should be recorded under “Returns and Allowances.” Chargebacks may include an additional fee, which can be categorized as a business expense.

Categorize Your Transactions

Categorizing your transactions can help you estimate your monthly revenues, day-to-day expenses, and any one-off transactions, which is why it’s a common practice in bookkeeping for eCommerce businesses.

Your transactions will generally fall into one of the following categories:

  • Sales
  • Returns
  • Chargebacks
  • Administrative fees
  • Salary
  • Marketing

You may have additional categories, depending on the type of business you operate. The point is that by placing transactions in these specific categories, you’ll be in a better position to do financial forecasting and hone in your business strategy moving forward.

This can also be an important step in managing your inventory, as your sales figures can be used to project future demand and show you the best times to order new supplies to keep up with seasonal trends.

Stay Current with All Taxes

Retailers often have to deal with two different types of taxes: business taxes and sales tax. Sales tax can be particularly important for eCommerce businesses, since you’ll have to deal with unique circumstances when you operate in one state but sell to customers in another state—or even another country.

Every state has its own regulations when it comes to filing sales taxes. An eCommerce accountant can help you sort through these details to help you stay up-to-date and in full compliance with all tax regulations. 

Your business taxes will be paid on your annual tax return, though businesses that anticipate paying over $1,000 in taxes are encouraged to make quarterly estimated payments. 

Again, an eCommerce accountant can help you with tax planning and preparation, so you can ensure you’re prepared for tax season.

Streamline Your Processes with Accounting Software

The right accounting software can make a world of difference for online retailers. Many business processes can be automated to save you time. The advanced analytical and reporting features of this software can help with financial forecasting and long-range planning, too.

Of course, the best way to have access to the latest software is to partner with an online accounting firm. Modern cloud-based software can provide real-time data on your business, which means that the online bookkeeping features provided by these firms can be accessed anytime, anywhere.

Finding the Right eCommerce Accountant

How do you find the right eCommerce accountant for your business? Here are three things you should consider:

Experience in Your Industry

The right accountant should be familiar with the unique needs of an eCommerce business, but the best accountant will also be familiar with your niche industry. 

For example, if your company sells books, you may have unique accounting needs when compared to someone that sells office supplies. 

Partnering with the right accountant can ensure that your current needs are met. They may also bring advice and expertise from other companies of your size and industry, helping you streamline or even scale your business.

Clear Communication Channels

Every business owner needs to stay on top of their cash flow. That’s why you want to choose an accountant that provides clear communication, so you’re never out of touch with the financial health of your eCommerce business.

At Xendoo, for example, our online accounting team adjusts to your preferred communication method. Your business data is never more than a call, text, or email away, helping you stay on top of every aspect of your business.

The best eCommerce accounting solutions will also provide you with financial reports, such as:

  • Profit/loss statements
  • Cash flow statements
  • Cash flow forecast

These reports are crucial to understanding the viability and health of your business. They can also help you better plan for the future. Additionally, if you ever need a small business loan (e.g., to use to increase your inventory), these financial reports can demonstrate the legitimacy of your business to lenders.

Flexible Pricing

Any retail business will have needs that fluctuate with the seasons, and your needs may grow as your business continues to evolve. The services of an in-house accountant cost around $40 per hour or more, depending on the accountant’s skill level and your exact needs.

This is why many small business owners are turning toward outsourced accounting firms that can perform online accounting for eCommerce for a fraction of the cost of a regular employee. 

Best of all, when your company’s financial needs are handled by a professional team, you can get back to focusing on your core business processes instead of getting sidelined by administrative details.

Flexible pricing means that you can scale your accounting needs as your business expands. Your accounting team should grow with you, helping you reach your full potential while staying up-to-date with your financial records and tax planning.

Get Your Head Back in the Game

If running your eCommerce business is starting to feel like running a circus, it’s time to contact a professional. Xendoo can help you handle your accounting and bookkeeping needs, so you can get your head back in the game and focus on handling your business.

See for yourself by signing up for our no-obligation free trial. You’ll wonder what you ever did without us!

Top 7 Requirements to Secure Ecommerce Funding (Hint: They’re Not What You Think)

/in , /by
A white, red-head female business owner stands proudly in her office, surrounded by packages

In the past, online sellers often had to dig into their own pockets to fund their eCommerce business dreams. 

Since small or growing businesses are technically high-risk investments, banks and other financial institutions were reluctant to part with their cash to help eCommerce sellers. 

But times have changed. 

Today, there is a growing number of funding options eCommerce entrepreneurs can tap into to make even their biggest, hairiest goals reality. Great news, given that 9.5% of businesses without financial capital say it negatively impacts their profitability. 

Yet, many eCommerce sellers are stuck in their ways, seeking capital from red tape-heavy banks or going without any funding support at all. In fact, a staggering 50% of UK SMEs don’t look beyond traditional funders—and the tunnel vision can definitely cost them.

The good news? It doesn’t have to be this way. 

To prepare you to face your next funding application with confidence, let’s jump into some of the requirements you’ll need.

Ready for a flexible funding solution? Learn more about how we help eCommerce owners improve their cash flow.

 

Secure ECommerce Funding the Simple Way

  • How to Fund an Ecommerce Business: Know Your Options
  • What Do I Need to Secure Ecommerce Funding?

1. Proof your business is on the right track

2. Know what eCommerce funding you need (and what for) 

3. Showcase your good moral character

4. Get your paperwork in order

5. Show off a little

6. Clean up your credit, stash away cash, and get collateral (but not for the reasons you think)

7. Be mentally prepared to move on

  • The Blueprint for Getting Your Ecommerce Business Funded  

 

How to Fund an Ecommerce Business: Know Your Options

Ecommerce funding has come a long way since its inception, and there is now a potential capital source to suit every business size and budget. 

Here’s a quick rundown of the most common eCommerce funding options:

 

  • Working capital: The seller receives funding to cover gaps in cash flow for day-to-day business expenses like shipping costs, supplies and utilities, or invest in a new product line, ad campaign or additional inventory for peak sales seasons.
  • Cash advances: The seller receives a lump sum and agrees to pay a percentage of their monthly turnover to the lender until the advance is paid in full—note: cash advances aren’t loans.
  • Invoice factoring: The business owner sells their accounts receivables (due invoices) to a factoring company at a discount with fees added on top. The factoring company then releases the funds to them.
  • Crowdfunding: The entrepreneur pitches their idea on a dedicated online platform to the masses, and individuals can choose to invest. There are three kinds of crowdfunding: debt, donation, and equity crowdfunding.
  • Peer-to-peer lending: Usually facilitated through an online platform, the individual receives funding from a person instead of a financial institution.
  • Angel investing: The business owner sells a stake in their business to a high-net-worth individual in return for capital.

 

Are you struggling to decide between cash advances and working capital loans? We can help.

What Do I Need to Secure Ecommerce Funding?

Thanks to the flexibility of some of the newer, more modern funding options, today’s funding requirements for growing eCommerce businesses tend to be much more flexible than those of traditional funders.

While most alternative eCommerce funders won’t throw out your application for lacking things like management expertise, collateral, or credit, there are some standards you’ll have to meet. 

Let’s break these down:

1. Proof your business is on the right track

 

Alternative funding providers are all about businesses with results that prove they’ve got a promising future.

No matter who you acquire eCommerce funding from, there’s one thing your provider will want to know: that they’ll get their money back plus a fair return. 

While you don’t have to be the next overnight Amazon sensation to prove your worth, you must show you’re a viable business and a low-risk investment.

Here are some things you can provide to show your business is worth the investment:

  • Calculations that demonstrate your business has a high ROI, net operating income, and Debt Service Coverage Ratio (DSCR). (More on this in a minute 😉).
  • Documents proving your business consistently turns a profit.
  • Store reports showing sales volume and minimal product returns.
  • Statements demonstrating you have sufficient liquidity to repay a loan, plus its interest and charges.
  • Records showing you’ve been in operation for at least 12 months.

If you meet these requirements, securing funding becomes a win-win situation for everyone, and you’ll have better chances of getting approved. 

 

Looking for a faster solution? Find out how you can pre-qualify for up to $1,000,000 in less than 5 minutes.

2. Know what eCommerce funding you need (and why you need it)

 

By the time you’re ready to start sending applications to prospective funding providers, you should have concrete answers to these things:

  • Your reason(s) for applying for external funding.
  • The intended purpose of the cash injection.
  • How much capital you need.

Not only will this help narrow down the type of funding you need (and suitable providers), it’ll also show you’ve done your due diligence.

Taking on funding is no child’s play, and mistakes in this area can cost you. Funding providers want to know you understand the risks involved and are prepared to take on this commitment.

Here’s how to show eCommerce funders you’re ready, step-by-step:

  1. Create a documented breakdown of the capital amount you need for each task (adjusted with a buffer for unplanned bills).
  2. Work out your return on investment (ROI). Are you making enough returns to make funding feasible? Note long term debt reduces ROI.
  3. Analyse your net profit income. How healthy is it? Will you have enough liquidity in your business to operate once you start to repay successfully?
  4. Assess whether any existing debts will inhibit you from making repayments. Calculate your Debt Service Coverage Ratio (DSCR) to help you with this task.

These are the three equations you’ll need:

 

1. ROI % = (Net profit) / Cost Of Goods Sold (COGS) * 100 

I.e. $20,000 / $10,000 *100 = 200%

2. Net Operating Income = Revenue – Cost of Goods Sold (COGS) – Operating Expenses

I.e. $50,000 – $20,000 – $10,000 = $20,000

3. Debt Service Coverage Ratio (DSCR) = Net Operating Income / Annual Debt Obligation

Not a fan of calculations? Try this DSCR calculator.

And, there you have it! A summary of your most important figures that prove your eCommerce business is good to go.

💡 Top tip: For best results, submit funding applications during peak seasons. When your sales volume spikes, you’ll be able to cover the repayments with plenty left over. This extra wiggle room helps funders feel more comfortable funding your business, and removes the stress of worrying about repayments.

 

3. Showcase your good moral character 

 

Most traditional funders will expect you to show good moral character—but some of the newer funding providers take a fresh angle on what this actually means. 

Here’s what a funding provider might look for: 

  • Overdue bills: Zero overdue bills (like student loans or credit card debt).
  • Missed payments: If you’ve gone rogue on payments to another funder, a credit check will reveal this to your prospective funder.

Note: If you have slipped on paying existing debts, don’t beat yourself up. According to Experian, US credit card debt stood at $756 billion. It’s a problem for many. Take active steps to get back on track with your payments and reduce your debt balance before applying for additional funding.

  • Get your paperwork in order

It may seem like an old-school requirement, but being organized can pay off big time in your eCommerce funding journey. 

Not only can getting your ducks in a row make the application process go smoother and faster, it may also earn you brownie points with the people reviewing your application. 

As the saying goes, ‘how you do one thing is how you do everything’. 

Remember, despite your funder being a financial institution or VIP, you’re still dealing with people—so first impressions count.

Here are the docs you’ll need to prepare as standard:

  • Proof of address
  • Articles of Association (and the names of directors and associated persons)
  • Company bank statements
  • Financial accounts, i.e., Income Statements, Profit and Loss statements
  • Financial projections
  • VAT returns/ Tax returns
  • Business plan

 

  • Show off a little 

To stand out, you need to get comfortable with a pinch of humble bragging. Opportunities to show off about your business only come around rarely, so when they do, grab it with both hands.

For example:

  • Do you have a business degree or business-related qualification(s)? 
  • Have you worked in retail, sales, or management for X amount of years?
  • Is your team excellent at drumming up funds through pre-launches?

These details will let potential funders know you care about success and are willing to invest in yourself to excel.

 

  • Clean up your credit, stash away cash, and get collateral (but not for the reasons you think) 

An increasing number of funding providers are choosing to overlook bad credit or a lack of assets at first glance—but there’s often a catch, and if you’re not careful you might end up with crappy interest rates, terms, or fees.

Having good credit, savings, and assets will put you in a better position to choose funding types and providers as well as negotiate terms. Plus, it’ll demonstrate to your potential funding providers that you:

  • Are in a stable financial position.
  • Have an alternative source of funding and aren’t in dire straits (desperation is never a good look).
  • Have a concrete backup plan should things take a turn for the worst.

Now you know why it pays to clean up your credit, here’s a game plan to go ahead and straighten up your finances: 

  • Start your credit-building journey by getting yourself and your business a credit card to build credit history and pay off existing debts. The debt avalanche and snowball methods are the most commonly used systems for clearing debt fast.
  • Analyze your progress through a credit score tracker.
  • Build a saving pot for your business by putting away a slice of your profits into a business saving account. Treat it like a bill you must pay no matter what.
  • Finally, work on securing assets for your business, like better equipment and storage units. They’ll impress funding providers and help you optimize the running of your business.
  • If you hit any road bumps, motivate yourself by picturing how impressive you’ll look to prospective funders with savings and good credit. 💪

 

  • Be mentally prepared to move on 

Having the relevant paperwork, collateral, and credit is essential—but it’s only part of the story to secure eCommerce funding.

So what’s missing? Resilience.

You’ll likely hear a lot of no’s on your journey, so be prepared to pick yourself up, keep your goal in sight, and move on to the next. 

Compared to traditional loans, eCommerce funding is still a new game—that means funding providers are continuously adapting their rules and approaches, and many are yet to catch up with eCommerce’s speed. 

Does this make life as an eCommerce owner more complex? You bet. 

But don’t forget you have a ton of options that give you the advantage. If you’ve tried to secure funding through traditional avenues before, and it’s just not working—move on.

Your dream funding option is out there, and your perseverance will pay off. After all, only 20% of US-based small businesses don’t use external funding.

The Blueprint for Getting Your Ecommerce Business Funded  

Thanks to a sharp rise in alternative modern solutions, business leaders can now overcome traditional funding requirements and opt for more flexible terms. 

But you aren’t entirely off the hook. 🎣

Today, eCommerce funding is a whole new ballgame with a new set of requirements to fulfill.

So, learn what you need to get approved by each, then execute with precision. Who knows, you may end up with more funding options that you know what to do with!

At Sellers Funding, our application process focuses firmly on sales performance, not credit history or collateral. If you’re not sure which funding option is right for your business, we can help.

 

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Selling on Amazon vs. eBay: What you need to know

/in /by
An eCommerce seller looks at her items for sale on a tablet

Ready to start selling your products online? Or have you already built a web presence and you’re looking to expand? From marketplaces like Etsy to building and hosting your own website on Squarespace or Shopify, small businesses have plenty of platforms to sell their products online. But eventually, most professional sellers find themselves asking: What are the pros and cons of Amazon vs. eBay?

Amazon vs. eBay: Who has the biggest market for selling potential?

By the sheer number of visitors, selling on Amazon is the winner here: 214.8 million people visit Amazon each month, compared to 106.9 million for eBay. However, both of these numbers represent huge potential audiences, so to really make the right choice about selling on Amazon vs. eBay, you’ll want to break it down. 

eBay’s audience is more international than Amazon: 57% of its revenue comes from international operations. Amazon doesn’t release these figures, but analysts estimate about 33% of its sales are international. eBay is also known for having “niche” customers searching for specialized products and second-hand goods. The real winner here depends on what you sell and who you sell it to.

Amazon vs. eBay: Which channel is more competitive? 

Amazon is much more competitive than eBay. Amazon rewards sellers with the highest-quality items at the lowest price. There are far more sellers on Amazon, and you may be competing with factory-direct prices from China or even with Amazon itself. 

On the other hand, eBay follows an auction format that will show shoppers many different options, conditions from new to used and shipping options, allowing sellers more opportunities to reach them. eBay advertising is also less competitive and therefore cheaper. 

Outside view of an Amazon pick up and return center.

Amazon vs. eBay: Which channel offers the best shipping and fulfillment?

Winner: Amazon.

When sellers opt for fulfillment by Amazon FBA, they’re able to use the retail giant’s warehouses, shipping, and customer service – for a fee, of course. They’re also eligible for Amazon Prime and the benefits that come along with it. Just remember that you may have to pay sales tax in those states if you use Amazon’s warehouses. Make sure you follow eCommerce bookkeeping tips to keep your records in order.

While domestic sellers are responsible for their own packing and shipping on eBay, the company does offer its Global Shipping Program. This allows sellers to use its “hubs” to ship internationally, with eBay taking care of the customs forms and import fees and providing tracking. This is another reason eBay is so popular with international sellers. 

Amazon vs. eBay: Whose fees reign supreme?

Overall, most sellers find that eBay’s fees are lower. But this doesn’t tell the whole story. Both platforms’ fees depend on what’s being sold, the type of account you have, and more. On Amazon, you’ll likely want a Professional Seller account, which will run you $39.99 per month. You’ll also pay a 15% commission on Amazon, plus a closing fee. If you go with Amazon FBA, you’ll pay those fees as well. 

On eBay, you’ll pay about $0.35 for each listing you create. With a $28-per-month Basic Store account, you’ll get 250 free listings. Once your item sells, eBay takes only a 10% commission. However, this doesn’t include payment processing, while Amazon does. You’ll also then need to figure out the shipping yourself. 

Once again, the answer to the age-old question of selling on Amazon vs. eBay depends on your sales volume and type of product. Here’s one point for eBay, however: One survey found that eBay was ranked number one by sellers in terms of ease of use, customer service, and profitability – while Amazon came in seventh. 

An eCommerce seller adds items to her online store.

The verdict: Amazon

Pros:

  • Reach a large audience
  • Amazon FBA is a convenient option for most sellers
  • Easy to use interface and tools

Cons:

  • Highly competitive
  •  Slightly higher fees
  • Less freedom over branding, product descriptions, and policies

Which eCommerce sellers are Amazon right for? 

  • Sellers with a high volume
  • Sellers with high-profit margins
  • Sellers of non-specialty items

The verdict: eBay

Pros:

  • Easier international sales and expansion
  • Control over branding, listings, and return policies
  • Lower fees 

Cons:

  • No domestic shipping program
  • Smaller audience
  • Less straightforward user interface

Which eCommerce sellers are eBay right for?

  • International sellers
  • Sellers of used and customized items, collectibles, and niche products
  • Sellers who desire more freedom over the selling process

You can even decide to settle the Amazon vs. eBay debate by selling on both platforms. No matter what you choose – and especially if you decide to sell on both – you’ll need expert eCommerce online bookkeeping to keep your books in order and ensure you keep up with sales tax laws. At Xendoo, we work with eCommerce sellers on both platforms to manage bookkeeping and accounting, so they can focus on what’s important: selling!