a person using a calculator

The Difference: Cash Basis Accounting vs. Accrual Accounting

In accounting, there are two primary methods—accrual and cash basis. The main difference between accrual vs. cash basis accounting is in how and when you record income and expenses in your books. Each accounting method has advantages and disadvantages, so it is important to understand their differences before choosing which to use for your business. 

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.

Table of contents

What Is Cash Basis Accounting?

Cash basis accounting is the simpler of the two accounting methods. In cash basis accounting, transactions are recorded as cash changes hands. In other words, income is reported when cash is received, and expenses are recorded when you pay your bills. 

Because it only records transactions when money is received, the cash basis method does not include accounts payable and receivable. In other words, you don’t account for sales customers made on credit (receivable) or business purchases you made on credit (payable). 

Benefits of Cash Basis

  • The major benefit of cash basis accounting is that it is simple. It can be done as easily as balancing your personal checkbook, so it doesn’t require any specialized accounting techniques. 
  • It can make it easy to identify when transactions occur since these will be recorded on your bank statements too. 

Limitations of Cash Basis

  • Cash basis may be simple, but it is not as accurate as accrual accounting. 
  • It only provides a day-by-day look at your finances, so it is more difficult to plan ahead.

What Is Accrual Accounting?

In accrual accounting, income and expenses are recorded when they occur, regardless of when money actually changes hands. In fact, it’s not uncommon to record income before you receive payment or to record future expenses before they occur.

Admittedly, this method is slightly more complex than cash basis accounting, but it is the standard for most businesses for a reason. 

Benefits of Accrual Accounting

  • It provides a thorough record of your company’s revenue and liabilities. 
  • Larger companies rely on accrual accounting because it gives them a better, more accurate picture of their financial health.

Downsides of Accrual Accounting

  • Accrual is more complicated than cash basis. You have to know the right accounting practices and standards to do it properly. 

Differences Between Accrual vs. Cash Basis

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

Cash Basis Accrual
Records transactions when money is received Records transactions when they happen, regardless of if payment is received
Does not include accounts payable and receivable Uses accounts payable and receivable
Is simple, but not as accurate Is a little complicated, but more accurate

However, the differences between cash basis accounting vs. accrual accounting can be particularly noticeable when it comes to two things.

  • Paying your taxes
  • Analyzing your cash flow 

Let’s take a closer look at how your accounting method will impact taxes and cash flow. 

The Effect on Taxes

Basically, you’ll pay tax on every source of income, though each method records income slightly differently.

Taxes and Cash Basis

Cash basis accounting remains the most straightforward method. Income is recorded only when you receive payment, which means that you’ll pay taxes on the cash your business receives. 

Cash Basis Example

For example, if your company sells a product to a customer in December of 2021 and receives payment in January 2022, this transaction would not be recorded on your business income tax return until the following year.

In other words, with cash basis accounting, your company will only pay tax on the cash you receive, rather than on future transactions.

Taxes and Accrual

When it comes to taxes, accrual accounting can be a bit tricky. With accrual accounting, you record income and expenses as they occur, rather than when you actually receive payment. This means that you’ll pay tax on all business income, regardless of whether you’ve actually received the money for the transaction yet.

Accrual Basis Example

Returning to our above example, if you sell a product to a customer in December of 2021 but don’t receive payment until January 2022, you would still pay income tax on that sale. Even though payment was not rendered during the same tax year, it is considered income according to the accrual accounting method.

Understandably, this is why it’s important for companies to manage their finances appropriately to prepare for taxes. One of the ways business owners keep a handle on their tax planning is by choosing to outsource bookkeeping and accounting tasks.

Online accounting firms like Xendoo can provide preparation and guidance to ensure you hold back enough money to cover your tax payments. 

The Effect on Cash Flow

When comparing cash basis accounting vs. accrual accounting, it’s important to understand how each method can impact your cash flow—the movement of money in your business.

Consider the following example, and then look at how each accounting method would calculate cash flow. Let’s assume you:

  • Sent a client an invoice for $500
  • Received a bill for $100 for the month
  • Paid $20 in fees for a bill you received the previous month
  • Received $100 from a client for an invoice sent the previous month

Pay attention to when money actually changes hands in our above example. This will greatly impact how cash basis accounting and accrual accounting will record cash flow.

Cash Basis Accounting and Cash Flow

Cash basis accounting will look at the example above and focus on the money that is changing hands. 

In our example, the only actual transactions that are recorded are the $20 you paid in fees and the $100 you received from your client, meaning your total profit is $80.

But do you see the danger of this method? Cash basis accounting records cash flow as $80. 

With this method, when you look at your upcoming expenses, you’ll have a bill in the amount of $100. You won’t be able to cover this expense until your client pays their $500 invoice.

This means that despite the simplicity of cash basis accounting, it has the potential to overstate your financial health at any given time. With that in mind, let’s take a look at how accrual accounting would handle this same example.

Accrual Accounting and Cash Flow

Unlike cash basis accounting, accrual accounting would record each transaction in the above example, regardless of when money is received.

Therefore, in our example, accrual accounting will record income in the amount of $600 ($100 received + $500 invoice), and expenses in the amount of $120 ($20 spent + $100 bill). The final profit for the month would therefore be $480 ($600 – $120 expenses).

This is a sizable difference. The same company would record profits of $80 or $480 depending on their accounting method. 

In comparing accrual vs. cash basis accounting, you can see how accrual accounting provides a more comprehensive picture of a company’s revenue and liabilities but doesn’t necessarily provide an accurate picture of your actual cash on hand.

This is why cash basis accounting works best for small companies or those with simple transactions, while larger companies prefer the accrual method.

Choosing the Right Method for Your Business

Choosing between cash basis vs. accrual accounting can seem challenging, but there are some basic considerations that can help you decide. 

Keep in mind that if your business earns more than $5 million in annual sales, you must use the accrual method. However, if your business earns less than $5 million, you may choose between the two methods.

When to Use Cash Basis Accounting

Cash basis accounting can be beneficial for smaller companies and startups. This can actually be a great method for eCommerce bookkeeping. If your company relies on a lot of online sales, cash basis accounting can make it easier to keep track of your books.

You should consider cash basis accounting if your business fits any of the following criteria:

  • Your company is small
  • You carry little inventory
  • You produce products on demand
  • You run a small eCommerce business (or an Amazon FBA store)

Some business owners start out using the cash basis method, then switch to the accrual accounting method after their business grows. This is perfectly legitimate, though you may need the assistance of a financial professional to help you make a frictionless transition between methods.

When to Use Accrual Accounting

Accrual accounting is the preferred method for larger businesses. It can also provide an accurate solution for businesses that do any of the following:

  • Conduct high-volume business
  • Maintain a lot of inventory
  • Conduct larger projects with multiple phases
  • Pay contractors for project milestones

Construction companies, for example, can benefit from accrual accounting. It’s easier to manage the money they receive from clients, as well as the expenses incurred from equipment and subcontractors. 

Similarly, web developers can benefit from the accrual method. It is ideal for businesses that have larger, complex projects that require multiple phases to complete.

Understandably, this can be a bit intimidating for business owners who already have a lot on their plates. Many entrepreneurs partner with online accounting services like Xendoo. We can provide assistance with your accounting and bookkeeping needs.

Getting Behind? We’re Here to Help!

Hopefully, now, you’ve got a better grasp on cash basis accounting vs. accrual accounting. But what if after reading this article, you realize you’ve been doing it wrong? What if you’ve been putting your books off until “tomorrow” and you’re not sure what to do?

First, don’t panic! At Xendoo, we’ve helped countless clients get caught up and back on the right track. The online bookkeeping features offered by our skilled team can ensure that you have all the help you need to manage your books, monitor your cash flow, and prepare for tax season.

If keeping track of your books gives you anxiety, don’t wait another day. Our free, no-obligation trial can show you how your business can thrive with accurate books. Sign up today and get back to managing your business!

 

 

ecommerce accounting

Ecommerce Accounting 101

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. This guide will cover this and more:

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 to find an accountant who is 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 ecommerce accounting, you can start a free trial today.

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

 

ecommerce bookkeeping services

Ecommerce Bookkeeping Services: What to Consider

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.

 

Two people surrounding by boxes look at a computer

How Do You Record eCommerce Sales in Accounting?

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 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.

 

A woman writing and looking at images of shoes

What Type of Accountant Does Your eCommerce Business Need?

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!

Black male business owner and white female business owner looking at a tablet, discussing business performance

3 Keys to Working Smarter, Not Harder in Business

Work Smarter, Not Harder

At SmartScout, we built our business around the idea of working “smarter”. Easy enough to say. What steps can small business owners take to work smarter? Glad you asked.

The three keys to working smarter, not harder, in business are education, technology, and delegation. In this blog post, we will show you how you can use these keys to expand your knowledge, streamline your workflow, and delegate work to your team to grow their skills.  

1. Never Stop Learning

What counts as educating yourself? It is both more and less than you might think. Reading this blog, for example, counts toward educating yourself. You either came to this blog because you were already following it, or you were searching for the answer to a specific question. It is crucial to stay informed on what is happening in your business niche so you can keep up with the competition and continue to grow your knowledge. However, this tends to keep you on surface level subjects, and when you find a topic that really interests you, you need to dive in deeper.

Watch Youtube videos, listen to podcasts, and take training courses. Even better is to learn from experts who actually walk the walk. Follow industry leaders on social media, and ask them questions when you can. Attend networking events and trade shows to connect with industry leaders and fellow life-long learners.

Most important of all, never stop learning. Self-improvement is a never-ending game, so find the way it works best for you, and keep at it!

2. Automate with Technology

Automate tedious work with technology to save time and minimize human error. One of the beauties of the modern world is that technology can steamline almost any task. There are solutions for every business function, including product research

For example, eCommerce business owners can save time by utilizing an online research tool such as SmartScout. The SmartScout database enables you to find thousands of lucrative products for arbitrage, calculate and reduce FBA fees, and increase product visibility with strategic advertising – just to name a few! Work that once took hours now takes moments with the SmartScout database. 

The goal is to balance time saved with money spent. If the task is outside of your area of expertise or simply takes up too much of your time, utilize tools that will save you time and sanity.  

3. Let Go and Delegate

Just like you need to give thoughtless tasks to technology, give thoughtful tasks to other people, so they can do their highest level thinking. This gets hard when it comes to things you are passionate about. Ask yourself, what are you holding onto that you need to let go of?

This is the reason why people who are promoted for their skills in a field often struggle as managers. They do not communicate with their team, nor do they trust them to follow through on assignments. To be a good delegator, you must become a good manager. Communicate clearly with your team and trust them with the tasks you give them, so they can help grow the business and their skillset.

What about the tasks that you do not like to do? If you lack expertise in a particular area and do not have a team member to take up the responsibility, partner with a professional. 

Many business owners spend countless hours on bookkeeping, which takes time away from running their businesses and enjoying their lives. By partnering with an online bookkeeper, they can effortlessly keep their financials up to date and stay tax-compliant, all with the support of an expert. This gives them the freedom to focus on what they love – growing their business. 

Need to improve your managerial or tech skills? Head back to the top of the list, and the cycle continues!

Always Getting Better

Successful business owners are always looking for ways to improve. The key is to work smarter, not harder! Continue to learn, automate mundane tasks with cutting-edge technology, and delegate work to save time and help your team grow in skill and knowledge. These simple practices can help you become the best business owner you can be!

What does your Amazon business need to succeed? With SmartScout, you have access to more product, brand, and seller data than anything out there. If you are ready to turbocharge your business, we are here to help!

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

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

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 organised 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 peopleso 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.
  • Analyse 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 optimise 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 essentialbut 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 gamethat 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 workingmove 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.

 

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

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

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!

A woman writing and looking at images of shoes

Guide to Accounting for Amazon FBA Sellers

Becoming a third-party seller on Amazon is an exciting opportunity for many small businesses. After evaluating the pros and cons of selling on Amazon, you may decide to go with an Amazon FBA (Fulfilled by Amazon) account. You’ll pay a fee to use Amazon’s warehouses, packaging and shipping, and customer service. One thing that isn’t included? Accounting for Amazon sellers

Amazon FBA offers plenty of benefits for small businesses, including eligibility for Amazon Prime and saving you time that could be better spent on management and growing your business. But there are a few extra considerations when it comes to Amazon FBA accounting:

  • Sales tax: FBA sellers use Amazon’s warehouses to ship goods and may be required to pay Amazon sales tax in the states where those warehouses are located. Check your local guidelines.
  • Consolidated deposits: Amazon pays vendors via a single deposit, once every two weeks. This deposit is more than your sales: It includes chargebacks and returns, fees, and sales tax. Manually sorting it all out takes time and can be complex. 
  • Amazon default reports: Amazon does provide reports, and some small business owners manually import that data into Excel spreadsheets to save money. However, this doesn’t allow you to really dig into the details and predict trends. 

Effective accounting for Amazon sellers doesn’t have to be difficult. You can use accounting software or leave it to the professionals. Let’s go over the DIY steps so you can decide which choice is right for you. 

Choose an online accounting software

You may be an Excel genius, but you need to ditch the spreadsheets if you want to do your Amazon accounting right. The best online accounting software is easy to use and secure, integrates with your bank account and other business and financial software, has good customer service and as a bonus, works with Amazon Seller Central. With software like Xero and QuickBooks Online, you can start small and increase your subscription as your sales grow, so you don’t break the bank. 

Add some helpful add-ons

The right accounting software goes a long way, but there may still be gaps you need to fill in. For example, breaking down those consolidated deposits is a notoriously tricky part of accounting for Amazon sellers. However, an add-on like A2X hooks up to Seller Central and automatically categorizes all the fees and reimbursements. There are also automation solutions like Avalara and TaxJar, which manage your sales tax returns and payments. 

An Amazon seller sets up her accounting reports on her computer

Photo by Karolina Grabowska from Pexels

Set up your reporting

It’s tempting for small business owners to check their bank account, see that big Amazon FBA deposit and assume their company is growing. But thorough Amazon FBA accounting means keeping track of the following: 

  • Profit & Loss Statement: See your revenue and expenses within a given period to spot trends
  • Balance Sheet: See an overview of your assets and liabilities
  • Cash Flow Forecast: Use cash inflows and outflows to model various cash flow scenarios
  • Accounts Receivable and Accounts Payable: See what’s owed to you and what you owe others

Reconcile your bank statements

Reconciliation is the process of comparing two different sources, such as internal financial records and bank statements, to ensure they match up. If the software you use to keep track of your finances has the wrong information, those mistakes will compound over time. Double-entry accounting software, like those mentioned above, can help you with this. However, you’ll still want to run a reconciliation report at tax time to double-check your reporting. 

Outside view of an Amazon pick up and return center.

Keep track of your inventory

Amazon FBA sellers use Amazon’s warehouses, packing, and shipping, so they may not even see their inventory. Amazon’s reports will tell you what you’ve sold, but it’s up to you to properly categorize your inventory and look for trends, so you know what to put on sale, what to keep on the shelves and how to deal with shrinkage. And don’t forget to use the matching method for the cost of goods sold: rather than recording a lump sum cost when you buy the inventory, do not record the COGS until the item is actually sold. 

Stay compliant

With warehouses in many states, cross-border trade, and varying sales tax laws, accounting for Amazon sellers can get complex. This is where sales tax compliance for Amazon FBA sellers comes in. Most FBA businesses sell “tangible goods,” which are taxable in nearly all states, with some exceptions for clothing or groceries. You’ll also need to consider whether you have “substantial nexus” in a state – and having inventory in an Amazon FBA warehouse may be enough.

When to hire a professional Amazon accountant

If you’re feeling confused, we don’t blame you. Sales tax compliance alone can be tough to keep up with, and penalties and fees can kill a small business. Accurate, up-to-date recording is essential, as well as basic knowledge of financial statements. Of course, you could do it all yourself, but remember, time is money. Xendoo is here to help, providing expert Amazon bookkeeping and accounting services and leaving you more time to focus on what matters: Growing your business.

A phone with amazon logo

Pros and Cons of Putting Your Small Business on Amazon

Ecommerce is booming. Total revenue will reach nearly $4.6 billion in 2021 and grow at an annual rate of 4.6% over the next five years – reaching $5.6 billion by 2025. It’s easy to see why owners of small and medium businesses are asking themselves how they can get a piece of the eCommerce pie. One popular option—the Amazon small business marketplace. 

In the first quarter of 2021, 55 percent of the units sold on Amazon were from third-party sellers. For a company with sales of more than $300 billion, that’s more than pocket change. But what are the pros and cons? And is it worth the trouble? 

What is Amazon marketplace?

The Amazon marketplace is an eCommerce platform that allows independent vendors and sellers to sell their goods on Amazon. The platform allows Amazon to forego the typical retail model, where it sources materials, then produces and stores each of its products until shipment. Instead, third-party vendors put products on Amazon and take care of the details, while Amazon gets a cut of the profits. 

What are the pros of selling on Amazon as a small business?

There’s no question that Amazon is popular with small businesses: In 2018, nearly three-quarters of Amazon sellers had between one and five employees. And Amazon for small business does have plenty of benefits, like the following. 

You can reach a larger audience

One of the biggest benefits of selling products on Amazon is that it can connect you with a wider audience: There are more than 200 million Amazon Prime members worldwide, and that’s not counting site visitors who don’t subscribe to Prime. That’s a huge audience for Amazon small businesses

Amazon can take a lot of the work off your plate 

Getting set up with Amazon marketplace is relatively easy: Just sign up and add products to the catalog. If you want Amazon to do more work for you, you can sign up for Amazon FBA, or Fulfilled by Amazon, which allows you to use Amazon’s warehousing, packaging, shipping, and customer service. 

Amazon has tools to help you sell 

In addition to Sponsored Ads – which actually make Amazon the third-largest digital advertiser behind only Google and Facebook – Amazon small businesses have access to MerchantWords, a proprietary keyword research tool. It uses actual Amazon data to help you optimize your product names, descriptions, and ads. 

Amazon provides technical support 

Amazon Seller Central is the platform’s support team for Amazon small businesses. It’s available 24 hours a day, although most sellers will be required to submit a request and wait for a callback. Still, most sellers receive a prompt response and are happy with the support they receive 

Closeup of two Amazon labeled AA batteries.

Photo by Syed Ahmad on Unsplash

What are the cons of selling on Amazon as a small business?

Amazon Marketplace sounds pretty great, right? For many small and medium businesses, it is. But it also has a few drawbacks you should be aware of. 

It can be expensive

With charges for selling, referral fees, and Amazon sales tax, the cost of selling on the marketplace can quickly add up. Sellers without a monthly plan will pay 99 cents per item sold, while those with a Professional Plan pay $39.99 per month. If you opt for extra features, like Fulfilled by Amazon, expect to pay more fees. 

It can be time consuming 

Getting set up with Amazon Marketplace is easy – understanding how to be successful there can be more time-consuming. Diving into the tools Amazon provides and optimizing your product take time. Plus you’ll need to figure out Amazon bookkeeping and accounting, inventory management, and more. 

The competition is fierce 

There were 1.1 million active Amazon marketplace sellers in the United States alone in 2019. Amazon Marketplace is also incredibly popular with Chinese merchants, some of whom sell products at super-low, factory-direct prices. You’ll even compete with Amazon’s own private label brands. And fake reviews abound on the platform, with competitors using bots to write thousands of five-star reviews at once. 

It’s Amazon’s world, you’re just selling in it 

Some Amazon small businesses feel they don’t have much power over the selling process. There are reports of Amazon punishing businesses for selling at lower prices on other marketplaces, or pressuring them to sign up for extra services. 

Should I use Amazon for my small business?

There’s no one-size-fits-all answer to whether you should sell products on Amazon. Certain categories, like personal care, beauty, and home goods, seem to have greater success on the platform. Businesses with high margins, who can afford to give Amazon its cut, can also do well. However, success with Amazon for small business depends more on your ability to figure out what works for you than on the type of business.

Xendoo can help dive into your books and help you make a sound decision on whether to sell on Amazon Marketplace. If you’re already a seller, we can ensure your books are in order – allowing you more time to focus on selling.

 

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.