Accounting and bookkeeping for e-commerce professionals comes with a unique set of needs. Make sure to find an e-commerce bookkeeping solution that understands how to handle your business accordingly!
April 21, 2022
Taxes, accounting, and bookkeeping are some of the more complicated matters of running a business. To make things more complicated, these aspects of a business don’t look the same for any two businesses. If you’re working in the e-commerce sector, there are a variety of unique challenges that you’ll have to deal with when setting in place an accounting system for your business.
What is E-commerce Bookkeeping?
Bookkeeping is simply the process of managing financial data for a business. It is one piece of the larger field of accounting, although many times these terms are used interchangeably because they deal with much of the same subject matter.
Bookkeeping looks different for every kind of business because every company has its own unique set of expenses and income categories. A real estate business, for example, has drastically different tax considerations, deductions, and expenses than a barbershop. Likewise, e-commerce businesses have many distinct elements that set them apart.
It’s essential to understand these differences so that your financial health is properly recorded and you have a clear understanding of where you stand as a business.
Why is E-commerce Accounting Different?
There is no one size fits all approach to accounting or bookkeeping that works. E-commerce accounting has its own unique set of challenges. It’s vital to work with an accounting and bookkeeping service that can handle these unique needs when looking for someone to assist you with the financial operations of your e-commerce store.
- Navigating Multiple Seller Platforms
Most e-commerce sellers use more than one platform to maximize their profits. Each of these platforms handles its accounting differently, which means different payment processors, different methods of handling taxes, and different fees to consider. Proper accounting and bookkeeping must track all income and expenses from all platforms on which you are selling, and do so with equal scrutiny.
This can make this complicated, as some sellers can be doing business on 3-5 different platforms. It should also be noted that your accountant should be able to show an overview of your finances as a whole and your finances per platform, so you can accurately evaluate which platforms are generating the most wealth.
- Properly Recording Merchant Fees
No matter what e-commerce platform you are using, you can expect merchant fees. Merchant fees are what keep these platforms in business, allowing them to profit off every client’s sales. These fees are taken out of your profits before you receive them into your bank account, which can be tricky for an accountant.
To properly log your gross sales, your bookkeeper must log what your business profited before any merchant fees, and log these fees as an expense in their reporting. When you are dealing with multiple online platforms, this can be problematic and easy to overlook. Some platforms may handle merchant fees differently than others - so it’s essential that whoever is managing your financial documentation understands this process comprehensively and can organize your data accordingly.
- Handling Refunds Correctly
Refunds are a tricky business in e-commerce. Because so many sellers depend on e-commerce platforms and payment processors like Stripe, Square, or Paypal, returns can look different for every business - and even look different for different transactions in the same business.
Sometimes these returns are accidentally recorded twice, as they will be noted in both the payment processor and the e-commerce platform. Many times, the merchant fees will not be refunded to the seller and therefore a refund will result in a small financial loss. Exchanges are even more complicated, as it is very rare that an exchange results in an exact interchange of values. Any bookkeeping service or accountant you work with should understand these challenges.
- Managing Third-Party Tools
Along with e-commerce platforms come third-party payment processors. All of these payment processors charge the merchant fees mentioned earlier, and sometimes additional fees as well. Because some of these platforms will disperse payments in bulk, not by sale, this can muddy up the waters of financial reporting. Whoever is managing your ecommerce accounting solutions should be familiar with the top payment processors and how to manage their style of dispersing income and charging fees.
In addition, you likely pay for a variety of third-party tools or services that will need to be logged in the proper category and considered part of your business expenses. Many new small business owners have a difficult time with this organization, as they decide to pay for certain services personally to get their business off the ground. This is a mistake. Log all expenses, subscriptions, and services that are used for your ecommerce business as such - and ensure any accounting software or service you work with understands how to manage this accordingly.
- Processing Finances From International Sales
You usually have the option to close international sales or open them, depending on what platforms you are using. For most online sellers, this is a no-brainer. Selling overseas online is an easy way to increase your reach.
The difficulty with selling overseas is that your business is now processing sales and merchant fees in multiple currencies. When recording these sales and expenses in your U.S.-based books as USD amounts, the exact currency conversion rate must be considered. Conversion rates change daily. This process can easily result in discrepancies in your books, especially if you aren’t working with an experienced accountant.
- Managing Multi-Platform Inventory
Inventory is one of the more complicated facets of e-commerce. Most e-commerce websites do offer inventory tracking and automatic updates as a part of their platform. However, most online sellers are using more than one platform. These platforms do not communicate with each other, and it is essential to find a way to easily organize all inventory from all platforms.
Keeping all of this organized will help you properly consider your financial situation as well (stored inventory = $). In addition, it will help you know when to reorder and how to accurately measure the return on your investments.
- Properly Collecting & Remitting Sales Tax
There’s no way around it. Sales tax for online businesses is a nuisance. The system of sales tax for ecommerce businesses has only had a couple of decades to get the kinks worked out, so it’s not perfect. Your business must collect and remit sales tax for any state in which you have a sales tax nexus. This just means that if you are selling enough in a given state, you owe them taxes.
Many e-commerce platforms will collect sales tax from the customers but will leave it up to the sellers to cover their portion. Amazon, however, is now responsible for collecting and remitting sales tax for those who sell on their platform. However, sellers still have to file the proper paperwork.
Sales tax is complicated for any e-commerce business. That's why you should keep track of your financial reports like your cash flow statement, financial statements, and financial transactions and follow cash basis accounting. You should work with an accountant who knows how to keep you compliant and understands the difference between different platforms.
- Managing Shipping Fees
On top of all this, there are also a variety of shipping fees to keep in consideration. Although you likely charge a flat rate for most shipping, there will be times that you end up profiting off the shipping and other times where it puts you at a loss. Your accountant will need to understand the intricacies of e-commerce shipping expenses and income to keep you properly organized. Many times, this includes setting up a separate bank account just for shipping funds and income.
How Do I Find A Good E-commerce Accountant?
Managing your ecommerce bookkeeping is no simple task, as you can see by all the many unique challenges that must be taken into consideration. Because of this, it’s best to rely on a professional to help you with the details, rather than trying to DIY it.
Some cloud-based accounting services make it a bit easier to try yourself - though you may find yourself stuck when anything doesn’t go according to plan.
You want to find an individual or a service that meets the following criteria:
- Has experience working with e-commerce clients
- Is a CPA or has CPA(s) on their team
- Can help you with multiple e-commerce platforms
- Will handle multiple currencies
- Can assist with inventory management
- Uses accrual-based bookkeeping
If you favor one e-commerce platform specifically, look for a provider who has experience with that platform. While e-commerce accounting struggles are unique to those of other businesses, they are not that different between e-commerce shops. There’s no need to reinvent the wheel - trust a professional to help you who has helped others in your shoes.
E-commerce bookkeeping is difficult and requires a unique set of skills. Your e-commerce business should look for help with accounting and bookkeeping services from someone with experience in the field who understands the unique challenges that online sellers face when organizing their finances. Not sure where to start? Our team has partnered with Quality Advantage to offer you professional accounting services for your e-commerce business. With CPAs on board and years of experience working with e-commerce sellers, we’ve got your back!
Julia Grant is a copywriter specializing in e-commerce and small business, helping businesses expand their reach with copy that clearly communicates their message and converts. She is a certified translator and interpreter and prides herself on providing culturally relevant content in both English and Spanish.See more posts from this author