Starting an eCommerce Business? Bookkeeping Basics You Need to Know

Just like a traditional brick-and-mortar business, your eCommerce business needs a good bookkeeping system for essential functions like tracking revenues and expenditures and filing tax returns. There are a lot of compelling reasons you need a bookkeeper, and for most small businesses, it’s generally more cost-effective to outsource the accounting and bookkeeping services to professionals like Xendoo that work with small businesses than trying to do it in-house. If outsourcing just isn’t feasible for your business, here are some bookkeeping basics for eCommerce that you need to know before trying to do it yourself.

Choose an Accounting Method

The first thing you’ll need to do is decide which of two accounting methods is right for your business – cash basis or accrual basis. The key difference between the two lies in when revenues and expenditures are recognized on the books. Let’s take a quick look at the differences between them.

  • Cash Basis: Transactions are recorded at the time the money enters or leaves the bank. If an invoice comes in during December but you pay it in January, the entry would go on January’s books.
  • Accrual Basis: Transactions are recorded at the time they are made, regardless of when cash enters or leaves the bank. An invoice dated in December would go on December’s books, even if it gets paid in January.

Cash basis accounting is simpler and easier to keep track of, but accrual basis gives a more accurate picture of the long-term profitability of the business by factoring in accounts payable and receivable ledgers. Most small business owners choose cash basis, but if you do, you may have to adjust your accounting software. QuickBooks, for example, defaults to accrual basis. Once you choose a method, you have to stick with it unless you are willing to go through a lot of government red tape to change it.

Record Your Transactions

Every time money comes into or leaves your business, whether it’s a retail sale, an invoice from a supplier that gets paid, or a loan payment, it has to be recorded “in the books.” Your “books” could be anything from an old-fashioned paper ledger to an Excel spreadsheet, or a full suite of accounting software. If you opt for manual bookkeeping, you’ll need to import all your information from your bank account into your ledger. Most good accounting software will interface with your bank and automatically enter transactions in your books for you, which can save you a lot of time. Whichever way you go, it’s crucial to stay on top of data entry so that you have an accurate picture of your business’s financial health.

A view of a couch on an eCommerce site

Categorize Your Transactions

You’re probably starting to see a trend in these bookkeeping basics for eCommerce, and that is to stay organized. Every transaction that gets recorded has to also be categorized for financial reports and tax returns. The two most basic categories you’ll need are revenue and expenses, although you’ll almost certainly want subcategories of each for your reports to be useful. You’ll need to be able to tell the difference between expenses for rent, payroll, utilities, debt installments, etc.

Another category that you’ll probably want as an eCommerce seller is “Revenue – Returns and Allowances.” This would encompass things like merchandise returns and credit card chargebacks in the event of fraud, which are not expenses, but rather debits to your revenue as essentially a reversal of the sale. However, if your credit card processor charges you a chargeback fee for the return, this would be an expense separate from the return itself.

Monitor Your Budget

If you haven’t already, you need to create a realistic budget that factors things like the seasonality of the business, how much inventory stock you will need to support your sales, cost of goods sold, and overhead expenses like rent, payroll, and utilities. Remember: a budget should not reflect what you hope will happen, but what is likely to actually happen. Many owners tend to be overly optimistic in their budgets and assume a best-case scenario for everything, which rarely happens.

Once the budget is in place, the company’s financial reports have to be checked against the budget regularly to see whether the business is over or under-performing your expectations. This can be simplified by using a budget calculator spreadsheet that uses formulas to compare actual revenue and expenses to budget figures. That way, you can see at a glance where your budget might need adjusting. 

Reconcile Bank Statements

Each month when the bank statement arrives, it’s crucial to compare what the bank says you have with what your internal books say you should have. This is done on a transaction-by-transaction basis and is critical for detecting problems early. If you find a discrepancy, you need to identify and resolve it quickly because it may be a sign of theft or another internal issue, or there may be a problem with the way you are keeping your books.

Check Your Cash Flow

Cash basis accounting gives a pretty clear snapshot of cash on hand, but if you’ve chosen accrual basis accounting, your books may show more cash on hand than you really have at the moment. This can be a problem if you need to pay a big invoice, so it’s important to run weekly or monthly cash flow reports to see the real amount of cash on hand and implement good inventory control policies.

Save & Organize Records

If there’s one bookkeeping basics for eCommerce rule you need to follow when you are starting out, it’s save everything. Good record-keeping is essential for any business, so you should save everything – receipts, invoices, statements, etc. You might just need to refresh your memory about a transaction you can’t remember, or you might need to validate your tax return for an audit.ecommerce business tips

You might notice that you are paying more than usual for a particular supply item and want to see what you paid for it in the past. You just never know, so be prepared. Here is a sample list of folders you should have in your filing cabinet for the basics of bookkeeping for eCommerce:

  • Invoices
  • Receipts
  • Other proofs of payment
  • Bank and credit card statements
  • Financial reports and statements
  • Shopify or Square revenue records
  • Cryptocurrency transactions
  • Previous tax returns
  • W-2 and 1099 forms for employees and contractors
  • Other supporting documents for income, deductions, or credits

Be sure to keep these bookkeeping documents in an area where you can easily find them.

File Sales Tax

Since the Supreme Court decision in Wayfair, Inc. v. South Dakota (2018), eCommerce retailers are subject to the sales tax requirements of each state in which they sell goods. That means that potentially, you might have to file 50 different sales tax returns monthly, quarterly, or annually, depending on the state. This is incredibly time-consuming for a small business and creates a lot of extra accounting overhead, which is just one of the reasons it’s generally more cost-effective to outsource your accounting and bookkeeping to a professional service like Xendoo.

Several tax documents are on a desk.

Pay Income Tax

Most businesses pay estimated quarterly income taxes and then file an annual return in April, in much the same way individuals have estimated withholding every pay period and then file a return in April. To calculate how much to pay each quarter, you’ll need to estimate your annual business income for the year. If you’ve been in business for a while this may not be too difficult, but if you’re just starting up you may need to make some careful calculations. The IRS has worksheets to help you calculate your quarterly taxes – Form 1040-ES for individuals and Form 1120-W for corporations. 

Generate Financial Statements

This may need to be done manually if you’ve opted to keep your books by hand, but generally, your accounting software will be able to generate these for you. You’ll need to go over your monthly profit and loss statements, balance sheets, cash flow statements, and other documents. Once you have insight into all of these, you’ll be able to plan ahead to make your business more efficient. Without them, you’re flying blind. Your P&L statement can reveal several key things:

  • Administrative Expenses (too high if they are over 20% of gross revenue)
  • Cost of goods sold (should be less than 75% of gross revenue)
  • How much you can afford to reinvest in the businesses

Similarly, your balance sheet can provide you with a snapshot of your company’s total assets and liabilities, including debt and equity positions. With this information in hand, you can calculate some key ratios that a lender will look at when you apply for a loan, including:

  • Assets to Liabilities Ratio (the company’s solvency or ability to pay bills)
  • Debt to Equity Ratio (financing from creditors in relation to stockholders)
  • Asset Turnover Ratio (how efficiently you generate sales from assets)

These are the bookkeeping basics for eCommerce that you need to know before you start your online business, but to grow your business and sustain success, you’ll probably need to do more than just manage your books.

 At Xendoo, we specialize in small business accounting for eCommerce and offer a full suite of accounting and bookkeeping solutions. We can help you every step of the way with automatic bookkeeping entries, tax reporting, financial statements, and much more to keep your new business lean and mean. It’s also a lot more affordable than you probably think because Xendoo’s low flat monthly fee is less than half of what you would typically pay an hourly accountant. 

Sign up for a free trial today and see how Xendoo can help your online business grow.

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.

 

Choosing the Right Accounting System for Your Shopify Business

Editor’s Note: This post was originally published in October 2017 and has been updated for accuracy and comprehensiveness.

Whether you’re brand new to online retail and trying to decide how to set up your eCommerce business, or you’ve been around a while and simply reached the point where your DIY accounting solution just isn’t cutting it anymore, Xendoo’s innovative suite of business offerings can help you. Xendoo can get your small business accounting running like a well-oiled machine so you can focus on what’s important – growing your business. To be competitive in the new economy, cloud-based accounting is no longer a luxury; it’s a necessity. Here are some of the best accounting systems for Shopify that can help get your business on track.

QuickBooks Online

QuickBooks Online is the cloud-based version of the popular and versatile QuickBooks business accounting software. Quickbooks Online accounting system for Shopify allows you to access your account information from any web browser, and the API creates a seamless interface that links directly to Xendoo’s platform. That means you can easily organize and sync all of your critical financial data with no tedious manual data entry. Additionally, Quickbooks Online for Shopify allows you to easily create and send invoices, receive payments, pay bills, and manage payroll. 

  • Track income and expenses
  • Capture and organize receipts according to your chart of accounts
  • Download and organize bank account and credit card transactions
  • Print checks
  • Create and send invoices, as well as receive payments
  • Print financial reports
  • Tax organization

A person holds their phone lookig at a recent Shopify order

Xero for E-commerce

QuickBooks is a popular accounting system for Shopify, but it may not be the best choice for everyone. Xero is another cloud-based accounting solution that will appeal to a lot of Shopify store owners. Xero is fast, simple, and powerful. It can sync with hundreds of third-party applications for point-of-sale, inventory, and much more. It also offers a mobile app for convenience and allows customers to create an unlimited number of users. From within the Xero accounting software for Shopify, you can manage your accounts payable, accounts receivable, budget, and category or division tracking. 

  • Customizable dashboard
  • Create invoices and quotes and receive payments
  • Track inventory
  • Bill payment
  • Expense management and project management
  • Create and print financial reports
  • Bank account reconciliation
  • Highly scalable for small or growing businesses

A2X for Shopify

A popular middleware, or “connector,” application that links your Shopify store with your cloud-based accounting system is A2X for Shopify. It automatically posts your Shopify sales and fees directly into QuickBooks or Xero, saving you hours of tedious work each week. That also means no more stressing over why transactions don’t match your bank deposits because A2X eliminates data entry mistakes.

  • Automatically post store data into QuickBooks or Xero
  • Automatically reconcile bank statements
  • Automatically make adjustments for fees and refunds
  • Create and print summarized statements

Coins spills out of a glass jar on a table

TaxJar for Shopify

A major time vampire for business owners who sell on Shopify is state sales tax compliance in the wake of Wayfair, Inc. v. South Dakota (2018), which requires online sellers to comply with sales tax requirements in each state where they do business. TaxJar accounting system for Shopify will streamline your sales tax compliance process by showing you where you should be collecting sales tax according to economic nexus laws and generating return-ready reports. It can even auto-file your returns for you if you want.

  • Calculate sales tax based on each state’s nexus
  • Daily updates allow for timely return filing
  • AutoFile option for automated return filing
  • Display fines and penalties for delinquent filing
  • Compare actual collections to what should have been collected

Shopify Apps

In addition to your accounting software, Shopify offers over 1,000 plug-in applications from their app store to help you with managing inventory, shipping, reporting, and much more. However, we suggest that you fully explore the capabilities of QuickBooks, Xero, A2X, and TaxJar before making any decisions about additional applications. A lot of functionality might be duplicated, and you certainly don’t want to pay for the same thing twice.

In addition to tons of helpful plug-ins, Shopify also features a profit margin calculator. Just plug in your cost of the item and a markup percentage, and Shopify will calculate the sale price, your gross profit in dollars, and your gross margin.

Outsourcing Your Bookkeeping and Accounting

Even though these accounting systems for Shopify can make life much simpler for sellers than even just a few years ago, it can still sometimes feel overwhelming. If you begin to feel like you might be in over your head, you should consider outsourcing your accounting and bookkeeping to a small business accounting firm like Xendoo.

There are a lot of good reasons to outsource your accounting for your Shopify eCommerce business, and it’s more affordable than you might think. Xendoo’s accounting team works with small business owners just like you to provide expertise and insight into the accounting needs of e-commerce businesses. Xendoo can take care of everything from weekly bookkeeping to filing business taxes for you, and our flat monthly fee is less than half of what you’d probably pay an accountant. Xendoo’s mission is to give you the peace of mind of knowing it’s being done right, and free your time to focus on what’s important – growing your business. Sign up for a free trial today.

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.

 

Cash Flow Management for eCommerce: 4 Tips for Smooth Sailing

Editor’s Note: This post was originally published in February 2017 and has been revamped and updated for accuracy and comprehensiveness. 

Cash flow is a measure of your business’s liquidity and ability to pay its debts from sales revenue. Cash flow management can be one of the most challenging aspects of being an online business owner. Your business can be profitable but still have a negative cash flow because profit calculation takes into account assets like inventory that you can’t use to pay bills. 

E-commerce businesses have an edge in cash flow management by virtue of the immediacy of the transaction, but that doesn’t mean online retailers are immune to cash flow problems. The customer has to pay you before you ship the item, so that means you don’t have to deal with an accounts receivables ledger full of aging accounts. But you still have operating expenses that can deplete your bank account, and you might end up having a lot of cash tied up in inventory before being sold. Fortunately, there are some things you can do to smooth out the turbulence and keep your cash flow – and your business – on an even keel. Read on to see our cash flow management tips to keep your eCommerce business sailing smoothly. 

Minimize Inventory

If your inventory is sitting on the shelf for more than 30 days, you have too much. You can’t afford to have that much cash tied up doing nothing. Use stock-keeping units (SKUs) to track the sell-through rate for each item in your inventory. The sell-through rate is the ratio of inventory sold during the month to new inventory added. If you see that an item’s sell-through rate is too low, you need to dig deeper and find out why. Are you producing too much of it? Is demand for it falling? Maybe some of the cash tied up in that product can be shifted to a more popular item that’s selling better, or it might even need to be discontinued. Don’t be lured in by bulk discount offers from suppliers unless you know for sure the item will move quickly. The right inventory management software can help you make sense of what is going, out, coming in, and just sitting there. 

Shot of two boxes on a table about to be shipped to customers

Get Creative with Sales

At the risk of stating the obvious, one of the best ways to keep a positively manage cash flow is to get more sales from your eCommerce business. The big question, though, is how to do that. What’s the best way to drive traffic to your site and increase the conversion rate of your visitors, and maybe even do a little upselling in the process? Here are a few ideas you can try for driving website sales.

  • Offer free shipping on larger orders to encourage bigger quantities
  • Create a loyalty program for repeat customers
  • Offer Buy One, Get One (BOGO) on items with a high margin
  • Bundle high-margin products with best-selling products
  • Cross-sell by offering related add-ons at check-out
  • Offer a recurring purchase option for consumable products
  • Offer incentives to “abandoned cart” visitors
  • Use a human or automated chatbot to engage with visitors
  • Implement a Search Engine Optimization (SEO) strategy to improve your site’s rank in search results.

If each of these strategies can increase your site’s average order by just 1 or 2%, that can quickly add up to 10% or more extra revenue coming into your bank account to help ease the cash flow. If you do go the free shipping route, make sure to read our tips on how to reduce shipping costs

Manage Your Payables

The other side of cash flow management is what’s going out to your accounts payable. You need to maximize the amount of time the cash stays in your bank account instead of going to your suppliers. When you set up contracts with suppliers, try to negotiate the terms. Standard terms will typically be 30 days, but some suppliers may be willing to go as far out as 60 or 90 days if you ask. Whatever the terms are, you should generally wait until the end of the term to make the payment so you can hang onto the cash as long as possible. Watch out for late fees, though. However, if your supplier offers discounts for early payment, they may be worth taking advantage of.

Consider an Inventory Loan

If you’ve done your best but still find yourself in a cash crunch and need to restock inventory, an inventory loan may be an easier option than a traditional bank loan. Lenders will look at more than just your credit history and will take into account your sales history and the stability of your business. Inventory loans can be either lump-sum loans or lines of credit with the bank that you can use over time. You won’t be able to finance the entire cost of your inventory, but you can expect to be able to cover around 50% of the cost through a loan.

Managing your cash flow wisely can be the difference between success and failure for your eCommerce business, even if you’re showing a profit on the books. Xendoo’s suite of products and bookkeeping services for small businesses can help you know exactly where your money is going so that you can manage it more effectively. Contact Xendoo today to start your free trial and see how we can help your small business grow.

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.

 

eCommerce Trend Report: 2020 Recap & 2021 Forecasts

Editor’s Note: This post was originally published in March 2020 and has been updated for accuracy and comprehensiveness.

For all the challenges the economy faced in 2020, it may come as something of a surprise that overall domestic retail sales saw their highest rate of growth in over two decades during 2020. What probably isn’t much of a surprise to anyone who has been paying attention is that that strong growth was driven entirely by eCommerce trends in 2020, with online sales accounting for 101% of that growth. 

The COVID-19 pandemic drove more and more shoppers to online retailers in lieu of brick-and-mortar stores, and the good news is that that movement shows no sign of slowing down in the eCommerce trends for 2021. The bad news is that sales tax compliance continues to be a thorny issue for online retailers as they struggle to keep up with state regulations. Figures represent US domestic sales unless specifically noted as global figures.

Consumer Migration to E-commerce

Overall retail sales in 2020 topped $4.04 trillion, representing a 6.9% increase over 2019 sales of $3.78 trillion. That was driven by a massive 44% increase in online shopping, nearly three times the previous record eCommerce year-over-year growth in 2019 of 15.1%. A significant portion of that increase was due to first-time online shoppers, as well. E-commerce market penetration leaped from 15.8% in 2019 to 21.3%, representing a sharp increase from its previous trend of 1-2% growth per year. In 2020, eCommerce transformed from being a convenient alternative to brick-and-mortar stores for some consumers to an essential part of daily life in an age of pandemic.

A person checks his phone for sales during Black Friday

Holiday Shopping

Following along with the overall trend toward online shopping, domestic holiday shopping showed similar rates of year-over-year growth. Out of $861 billion spent online in 2020, over $200 billion of sales occurred during the holiday shopping months of November and December. 

  • Thanksgiving Day online sales rose 21.5% to $5.1 billion 
  • Black Friday online sales rose 21.5% to $9 billion
  • Cyber Monday online sales rose 15% to $10.8 billion
  • Total Cyber-week domestic online sales reached $60 billion 

Hottest E-commerce Segments in 2021

Fashion and online apparel remained the largest segment of online shopping globally in 2020, followed by toys and electronics. 

  • Online apparel sales rose 15% to $760 billion globally, projected to reach $1 trillion by 2025
  • Toys rose 12% to $590 billion in global online sales, projected to reach $766 billion by 2025
  • Consumer electronics saw $542 billion in global online sales, a 28% increase over 2019.
  • Food and personal care items came in fourth at $468 billion
  • Furniture and household appliances totaled $362 billion globally.

Largest Retailers

Unsurprisingly, Amazon retained its throne as the undisputed king of online retailers, with a whopping 38% of all domestic sales, down slightly from its 2019 share of 43.8% share in 2019. Other online retailers like Walmart and Target managed to chip away at Amazon’s lead, but are still behind by a wide margin. 

  • Amazon – 38%
  • Walmart – 5.3%
  • eBay – 4.7% 
  • Apple – 3.7%
  • Home Depot – 1.7%

Smartphone Sales

Smartphones continued to increase in popularity as a platform for online shopping, representing 54% of online sales in 2020 and projected to reach 73% in 2021. 79% of smartphone owners have made at least one online purchase with the device, and 80% of smartphone owners have used a smartphone to look up product information or reviews while shopping in a traditional brick-and-mortar store. It’s clear that the prevalence of smartphones will continue to be a driving force in eCommerce for the foreseeable future. 

A man pays for an item using his digital wallet on his phone

Trends to Watch

Whether you have something like a Shopify store or sell through your own website, it’s imperative to stay on top of technology and predict online consumer product trends so that you can stay one step ahead of the competition. To that end, we’ve identified some eCommerce future trends that are definitely worth keeping an eye on in 2021.

BOPIS (Buy Online, Pick-Up In-Store) and Curbside Pickup

This was the trend that dominated much of 2020 because it combined the convenience of online shopping with the immediacy of in-store shopping. While some shoppers will revert to in-store shopping, this trend is here to stay.

Augmented Reality (AR)

Augmented reality emerged as a player in eCommerce in 2020, with, for example, some furniture retailers allowing consumers to upload a photo of their living room and see how a particular piece would look in it.

Digital Wallets & One-Touch Purchase

Many consumers have been hesitant to make the move to online shopping due to concerns about fraud, while others were put off by the inconvenience of having to enter a credit card number. Digital wallets like ApplePay and GooglePay have alleviated many of those concerns by making secure one-touch purchases from smartphones. However, most security concerns are pushed to the wayside for convenience, and this eCommerce trend is probably here to stay. 

Cryptocurrencies

Although controversial and not widely adopted currently, cryptocurrencies are poised to become a force in eCommerce in the not-too-distant future. Because Bitcoin is both a currency and a payment processor, it can facilitate secure transactions across borders at transaction fees of 1%, as opposed to the typical 2-3% merchant fees charged by credit card processors. Some large online retailers like Overstock.com already accept Bitcoin.

More Sales Tax Headaches

In response to declining state sales tax revenues from the move to online shopping, the US Supreme Court ruled in South Dakota v. Wayfair (2018) that each state had the power to individually tax online retailers to create a replacement revenue stream. Online retailers must now monitor and comply with 50 different sets of sales tax laws, creating an enormous amount of accounting overhead. 

This is yet one more reason to outsource your bookkeeping service and accounting to a professional firm like Xendoo as a cost-effective solution to this regulatory nightmare. Sales tax processing is just one of the many affordable services available in Xendoo’s suite of small business offerings. Xendoo can also make sure that you are getting all the eCommerce tax deductions that you are entitled to as an online retailer.

It’s clear that eCommerce will only continue to grow by leaps and bounds in the years to come. Consumers were already growing accustomed to the convenience of online shopping, and the COVID-19 pandemic was the impetus that pushed many holdouts to take the plunge. Many retailers struggle to understand emerging technologies and keep pace. The retailers that don’t will be left behind in the wake of those who do. Staying on top of technology and eCommerce trends is critical to success in retail in 2021. 

Experience the Xendoo difference with a one-month free trial.

 

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.

 

The Benefits of Selling on eBay

eBay and Amazon were both founded in 1995. Amazon back then specialized in selling
books, and eBay had few other competitors in the ecommerce selling space at first.

As we know, this is no longer the case – by a long shot. eBay is now up against giants
like Amazon and Walmart (whose relatively new marketplace has taken the ecommerce
industry by storm) and Shopify to name a few.

With these kinds of competitors, what could give eBay an edge for sellers, and why
should you consider the platform if you aren’t already using it?

  • The Auction Format: what eBay is known for (although you do have the ‘Buy It
    Now’ option available too). Particularly good for rare or collectible items, the
    auction format allows buyers to bargain for products and may result in higher
    profits. It can also move your inventory quickly, if you need faster sales.
  • Simple and Quick Set-Up: your eBay store can be set up and ready to go in a
    matter of minutes. Great for newer sellers to get started and build on over time.
    Scroll down for a step-by-step on this process.
  • Competitive Fees: there are six subscription options for sellers on eBay, starting
    from as low as $4.95/month. You then have insertion fees (approximately $0.35c
    per listing), final value fees (around 10%) and if you choose, listing upgrade fees.
    These are relatively easy to stay on top of compared to some other platforms.
  • eBay Managed Payments: eBay’s new Managed Payments system eliminates
    the extra fee previously paid to PayPal for a transaction, saving sellers a little in
    the process. It gives buyers more payment options, generates reports on your
    financials, provides tax documentation, and allows direct transfer to your bank
    account, saving you time. Plus, with A2X now able to integrate with Managed
    Payments, you can level up these bookkeeping tools even further – more on this,
    below.
  • Third-party Sellers Only: sellers on eBay escape the added challenge of
    competing with own-brand products like Amazon Essentials for example, being a
    platform for third-party sellers only.
  • More Global Reach: typically, more than half of eBay’s annual sales revenue is
    generated from its 60 million buyers outside the US, setting it apart. Sellers are
    able to choose to list their items on international eBay sites, expanding their
    reach and tapping into that huge overseas customer base.
  • Global Shipping Program: reaching international customers requires
    international fulfillment, and eBay delivers. You will need to meet a few criteria to
    be eligible for the program, including earning a rating of Above Standard or
    higher. If eligible, your items may be covered by eBay’s Money-Back Guarantee,
    and any bad feedback received due to mistakes in the handling will be
    automatically removed from your store.
  • Highest Mobile Reach (for Android): approximately 6.27% of Android users
    can be reached with the eBay app compared to Amazon’s 0.97% and Walmart’s
    1.78%. Those numbers may look small, but with mobile ecommerce sales
    expected to make up around 54% of total ecommerce sales by 2021 – they add
    up. And don’t underestimate the portion of people using android; the number of
    Android smartphone users is forecast to reach 130 million in 2021 and only just
    lost the top spot to iOS at the beginning of 2020.
  • More Room for New Brands and Private Label Sellers: large established
    brands flock to sell on platforms like Amazon, flooding the seller space and
    making things a little tougher for the smaller or younger businesses to cut
    through. Sellers still developing their customer base and brand might have more
    success on eBay, as may private label sellers, due to a few changes in eBay’s
    offering.
  • More Room for the Miscellaneous: eBay has the option for sellers to select
    “does not apply” when they can’t find a product identifier relevant to their listed
    item. There are also no ‘gated categories’ as found on other ecommerce
    platforms (but there are some prohibited and restricted products to be aware of).
  • Diversifies Your Portfolio: diversification is a great step to grow and future-
    proof your ecommerce business. Having all your virtual business eggs in one
    basket is never a good idea. Not only can you sell more stuff by branching out,
    but you can protect yourself from complications if you are suddenly suspended
    on one site. You can also expand your reach and learn more about your
    customers’ buying behavior beyond one platform, and ultimately grow your brand
    awareness and loyalty.

 

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.

 

 

Walmart Marketplace: Pros, Cons and Best Practices for eCommerce Small Businesses

You’ve got options when choosing a platform to sell your products online. Two of the best known are Amazon and Shopify. But there’s another big name player you might not have considered: Walmart.

The power of the world’s largest brick-and-mortar retailer is now expanding to Walmart’s eCommerce operation; and you can reap the benefits, from accounting to customer service.

Pros of Selling on Walmart Marketplace

Let’s start with a rundown of its advantages.

  • No set-up or maintenance fees (unlike Amazon). The only fee Walmart charges is a referral on sales (which other platforms also charge), typically 6% to 20% of the sale price.
  • Share in Walmart’s brand awareness. Customers trust the brand more than they do private Shopify sites and will be more likely to visit when directed by ads.
  • Attract a larger — and different — pool of customers. More than 100 million people visit walmart.com every month. And because of Walmart’s everyday low price guarantee, they aren’t all the same people who visit Amazon.
  • Less competition. Amazon has more than 2.5 million sellers. As of now, Walmart Marketplace has about 33,000. Which group would you rather compete with?
  • Returns to local stores (online return processing is still an option). This gives customers an added convenience and saves you from paying return shipping.

Cons of Selling on Walmart Marketplace

  • Walmart isn’t pie-in-the-sky-perfect. Before you choose this platform for your eCommerce business, decide whether these drawbacks are deal-breakers.
  • Lower margins. That low price guarantee we mentioned above might mean you’ll be making less profit. If you list the same product elsewhere at a higher price, Walmart will unpublish it on their site.
  • Application and approval hoops to jump through. Walmart vets every eCommerce business before they’re allowed to sell on the platform. Thus, they ensure the quality of products and services associated with their name.
  • Order fulfillment, another hoop. You must also be approved to participate in Walmart Fulfillment Services and a 2-day shipping program. If you don’t, you’ll have to handle it all yourself. Also, note that Walmart may penalize you for shipping errors.

Lackluster seller support services. There have been reports that Walmart is slow to respond to seller issues (or never responds at all).

Tips for Maximizing Walmart Marketplace Sales

  • Categorize products correctly when you upload product pages — including filling out all the attributes that customers might be inputting as keywords when they search walmart.com. If you aren’t complete and accurate, your product may never even be seen.
  • Use paid ads to drive site traffic. With a cost-per-click model, you are only charged when a customer actually clicks through to your site. Choose Walmart’s own Media Group or another third-party provider.
  • Price products for the “buy box.” Buyers on walmart.com can view this box to see which seller is offering the lowest price. It may not be a viable strategy for all businesses, but it can definitely amp up your sales volume.
  • Maintain quality fulfillment standards, as spelled out in the seller agreement contract — 99% on-time shipping, etc. You’ll not only be allowed to stay on Walmart Marketplace, you’ll move up in the rankings that customers use to choose a seller.
  • The same goes for customer service — prompt response to customer inquiries, number of complaint escalations, shipping notifications, and tracking.
  • Get favorable reviews. Because many people filter search results by best reviews, it’s worth your while to work for a positive customer experience every time. Also, send a follow-up email after the sale asking for a review — and a chance to fix any issues before the review is written.

Need help setting up your accounting for Walmart Marketplace? Turn to the eCommerce small business specialists at Xendoo. We’ll get you started with a one-month free trial.

 

 

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.

 

Is Shopify Fulfillment Network a Sales Tax Help or Hindrance?

In June of 2019, Shopify launched its own shipping network, thus making it easier for sellers to fulfill their orders. More recently, it purchased 6 River Systems Inc. — which specializes in AI and robotics — to make the network even more efficient.

Now, merchants using the Shopify platform don’t have to do their own fulfillment or outsource that function to a third-party service. The benefits have been obvious: reducing shipping costs, speeding up order fulfillment, and retaining ownership of customer relationships and data. Sellers can even choose a packaging option that matches their company’s branding.

Does It Change Where You Need to Collect Sales Tax?

The short answer is probably yes. For one thing, the old rules about “physical nexus” in a state — such as a brick-and-mortar location, employee or stored inventory — are still in effect. With your merchandise now being shipped from any of Shopify’s Fulfillment Network centers in various states around the country, you will trigger physical nexus in those states, instead of just your home state if you were doing your own fulfillment before. So you will need to stay aware of where your inventory is being stored. Another complication is the new “economic nexus” rules which more than 40 states have set up following the 2018 Supreme Court ruling in the case of South Dakota v. Wayfair. That ruling gave states the right to collect sales tax from any business with economic activity in the state — such as selling and shipping orders there. If you’re a very small business with minimal annual revenues and/or a number of transactions within a state, you may be exempt from this. Most — but not all — states have thresholds that must be crossed before you need to collect sales tax on those purchases. In Florida, for example, the minimums are 200 separate retail transactions or $100,000 of retail sales of personal property or taxable services that are delivered within the state.

Does It Change Who Collects and Remits Sales Tax?

For now, the answer is probably no. You may have heard about “marketplace facilitator laws” which some states have created to ease the sales tax accounting burden on small e-commerce businesses. These laws assign responsibility to the marketplaces — such as Amazon’s FBA — to collect and remit state sales tax on behalf of their third-party sellers. However, currently, Shopify sellers don’t operate as third-party sellers. They are independent retailers who manage their own branding and marketing and own direct relationships with their customers. Therefore, for the time being, marketplace facilitator laws don’t apply to them, or to Shopify. It’s entirely possible that states will change their determination of Shopify as a marketplace of third-party sellers. We’ll have to wait and see what happens.

Help Is at Hand

Need someone to guide you through the sales tax jungle? Xendoo’s e-commerce experts, using top-flight professional accounting software, will keep you up to date with the latest regulation changes with regard to Shopify Fulfillment Network. Even better, we’ll set you free from all the paperwork — from sales tax permit registration to remittances to records maintenance. Best of all, our flat monthly rate packages are easily affordable by small businesses. Find out for yourself with a one-month free trial.

 

 

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.

 

What Amazon FBA Sellers Need to Know about the Shipment freeze of Non-Essential-Products

On Tuesday, March 17, Amazon notified its US and EU sellers that it would no longer be receiving non-essential shipments of Fulfilled-by-Amazon (FBA) inventory. As of today, 3/18/20, the freeze for those marketplaces runs through April 5, 2020.

This is in response to the COVID-19 pandemic and will presumably allow Amazon to focus on fulfilling the essential health, safety, and household products consumers are demanding.

Amazon sent the following notification:

Temporarily prioritizing products coming into our fulfillment centers

We are closely monitoring the developments of COVID-19 and its impact on our customers, selling partners, and employees.

We are seeing increased online shopping, and as a result, some products such as household staples and medical supplies are out of stock. With this in mind, we are temporarily prioritizing household staples, medical supplies, and other high-demand products coming into our fulfillment centers so that we can more quickly receive, restock, and deliver these products to customers.

For products other than these, we have temporarily disabled shipment creation. We are taking a similar approach to retail vendors.

This will be in effect today through April 5, 2020, and we will let you know once we resume regular operations. Shipments created before today will be received at fulfillment centers.

You can learn more about this on this Help page. Please note that Selling Partner Support does not have further guidance.

We understand this is a change to your business, and we did not take this decision lightly. We are working around the clock to increase capacity and yesterday announced that we are opening 100,000 new full- and part-time positions in our fulfillment center across the US.

We appreciate your understanding as we prioritize the above products for our customers.

Thank you for your patience, and for participating in FBA.

What does this mean for US and EU Amazon FBA sellers?

As of this writing, Amazon FBA sellers will not be able to create shipments to be received at Amazon’s fulfillment centers through Seller Central. Until April 6, Amazon will only accept essential items such as household staples and medical supplies.

Currently, the categories Amazon is currently accepting are as follows:

  • Baby
  • Health & Household
  • Beauty & Personal Care (including personal care appliances)
  • Grocery
  • Industrial & Scientific
  • Pet Supplies

Note: Not all products in these categories qualify as essential.

However, if FBA sellers correctly classify a product but still can’t make a shipping order, then Amazon is not prioritizing the product in question.

And while many Amazon sellers sell in multiple of Amazon’s 27 physical product categories, many will still be out of luck for not selling in the six allowed.

How many Amazon sellers sell in the allowed product categories?

  • Baby – 17%
  • Health & Household – 20%
  • Beauty & Personal Care – 20%
  • Grocery – 12%
  • Industrial & Scientific – 9%
  • Pet Supplies – 15%

Still receiving and shipping “grandfathered-in” inventory as planned

If you created your replenishment order before March 17, Amazon will still receive it. And while essential items will be given priority, Amazon will still pick, pack, and ship non-essentials.

However, non-essential orders may ship more slowly than normal, especially as shipping carriers feel the strain of increased shipping during the coronavirus outbreak.

Amazon FBA sellers can still use other methods of fulfillment

Amazon encourages sellers who typically sell FBA to use their own resources and carriers for shipping products and to sell Fulfilled by Merchant (FBM).

Fulfillment by Merchant (FBM) is a method of selling on Amazon in which a seller lists their products on Amazon, but manages all storage, shipping, and customer support themselves (or through another third party).

Approximately 94% of all third-party Amazon sellers sell through FBA; 66% sell only through FBA, while 29% sell through both FBA and FBM.

How will this affect Fulfillment by Merchant (FBM) sales and sellers?

So far, there is no change for Fulfillment by Merchant (FBM) sellers who pick, pack and ship their own goods for orders sold on Amazon. Amazon sellers are still able to create and list products.

FBM-only sellers account for just 6% of Amazon’s third-party sellers.

Can sellers still sell non-essential products?

Yes, both FBA and FBM sellers can still sell products that are non-essential. The only change is that FBA sellers cannot send non-essential inventory into Amazon’s fulfillment network.

Therefore, sellers must ship any inventory that is not already a part of Amazon’s FBA supply chain themselves or use another third-party fulfillment network.

Can sellers sell essential products?

Sellers can still sell essential products as long as they are able to create listings for it. But, sellers looking to list products in one of the six essential categories may need Amazon’s approval. Amazon has “gated” some of the categories.

Furthermore, Amazon has started to crack down on price gouging practices for essential goods like hand sanitizer, toilet paper, and protective face masks. Listings with high prices are being taken down and in some cases, Amazon is even threatening prosecution.

 

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.

 

Ready to Sell Your Shopify Store? Here’s How to Get Started

There are many reasons why people decide to sell their Shopify or other eCommerce stores — personal or professional. What they all have in common, though, are the worries that come with that decision:

  • What if I can’t get a fair price?
  • What if I can’t find a buyer?

These tips will help steer you through the valuation and marketing process of transitioning your business to a new owner and how to make sure the bookkeeping for your e-commerce business are ready for sale.

Put a Price on Your Business

There’s no point in starting negotiations unless you have a definite number that shows how much your business is worth — one that will pass muster with bankers, accountants, and financial consultants, not just something you pulled out of the air.

There are three valuation methods used for eCommerce websites:

  • Discounted cash flow analysis – make a projection based on future cash flows
  • Asset value – subtract your liabilities (such as debts) from your assets (such as inventory)
  • Multiple of revenue – multiply net profit times a specific number of years

The third way is the most common, so we’ll discuss that in a bit more detail.

Determine Multiple of Revenue

First, you must figure out your net profit for the year. If your accountant provides you with a profit and loss statement, just look at that. If not, you’ll have to fill one out; free P&L templates are available on the internet.

Next, figure out the multiple — number of years the business can expect the same or similar net profit. This multiple is generally considered the amount of time it will take the new owner to make back their initial investment.
The multiple is dependent on a variety of factors which assign more or less risk to a business. So, the less risky your business, the higher your multiple. These factors include:

  • Growth in net profits year-over-year shows less risk, therefore, gives you a higher multiple
  • Growth opportunities, though not guaranteed, should be considered part of the value of your business
  • Type of business model — some are riskier than others

Doing the math, you can see that a higher multiple will result in a higher price for your business.

$100,000 net profit x2 multiple = $200,000 value of business
$100,000 net profit x3 multiple = $300,000 value of business

Analyze Your Business and Market for Ways to Add Value

Your Shopify business should also be evaluated for its strength, sustainability, and growth potential. It’s a good idea to get concrete numbers to support the following factors:

  • Overview – age of business, business model, performance over the last 12 months
  • Financials – current and projected growth rate, whether growth is trending up or down
  • Customers – major traffic sources (such as Shopify), lifetime value of customers, customer engagement
  • Operations – number of employees, the value of inventory, list of suppliers
  • Vertical – how the business performance compares to competitors, and how saturated is its niche
  • Market — what price similar e-commerce businesses have sold for in the past and what’s currently on the market (check flippa.com for these sales records)

Clean Up Your Act to Impress Potential Buyers

Here are some steps you can take to present the most favorable picture of your business.

  • Because buyers are most interested in recent sales, wait — if you can — until sales are at their yearly peak. Or make extra efforts to increase sales for a few months.
  • Organize and update your financial accounts, including receipts, categorized expenses, Shopify refunds or other adjustments, bank reconciliations, and taxes. Buyers want to see accurate, summarized statements, not a big mess. Make sure you use a catch up bookkeeping service so your financials are updated when you’re ready for sale.

List Your Business for Sale

Here are some of your options.

  • Exchange Marketplace is especially for selling Shopify businesses. You do have to meet some eligibility requirements, such as your account is in good standing and you don’t have active financing from Shopify Capital. Transferring the business and receiving payment is super simple.
  • Flippa is widely regarded as the best platform for buying and selling online businesses. This is an auction format, so you’ll have to set a reserve price, auction time, and so on. Verify that the buyer has placed their payment in the escrow account or sent it via Paypal before you transfer ownership.
  • Website broker: If you’re not sure you’ve evaluated your business correctly, consult with a professional website broker. Brokers do charge a fee, but they can be a big help in maximizing your price and avoiding mistakes.

Get Help with Your Financials

Whether you’ve got a bookkeeping backlog to clean up fast or need reliable P&L statements every month, Xendoo’s got you covered. Our eCommerce experts use Xero, the world-leading professional accounting software, to help get your business ready for a successful sale.

Xendoo’s flat-rate packages are easily affordable by small businesses. Find out for yourself with a one-month free trial.

 

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.

 

7 Don’t-Miss Tax Deductions for eCommerce Businesses

Why settle for standard business deductions, when there are more opportunities to lower your tax bill, some of them seemingly tailor-made for eCommerce businesses? Before you prepare your return this year, check out this list of possible deductions.

1. Home office.

In order to qualify for this one, you must use at least one room in your home exclusively for business; working on your laptop in the living room doesn’t count. If you meet that requirement, you can deduct a percentage of nearly every house-related expense you can think of, including rent/mortgage, utilities, repairs/maintenance, and insurance premiums. (The percentage deducted is based on the percentage of the house’s total square footage that your office occupies.)

2. Office supplies, equipment, and software.

Furniture, computer, printer, camera gear (if used for photographing your merchandise), postage meter, inventory management software, paper clips — if it’s used in your office it’s usually 100% deductible.

3. Phone/internet.

You can deduct a portion of your phone and internet charges based on the percentage of time that you use them for business.

4. Transportation and travel.

Any car used for business purposes is eligible for deductions; even if it’s also your personal vehicle you can still deduct a percentage. There are 2 deduction options: a flat amount per mile or a total of actual costs such as gas and parking fees.

Other travel-related deductions include airfare, cab fare, tips, meals, and conference tickets.

5. Fulfillment costs.

You can deduct the costs of packaging materials and shipping to customers.

6. Subcontractors.

Whenever you use independent web developers, graphic designers, photographers, content writers, bookkeepers, temporary office staff — anyone not on your payroll — their fees are 100% deductible.

7. Merchant processing fees.

You probably use one or more credit card processors such as PayPal, Stripe, or Square. But did you know you can deduct their fees?

 

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.