Every day, business entrepreneurs encounter new challenges. Efficient bookkeeping and accounting operations are at the top of the list. It cannot be easy to manage every area of your firm as a small business owner that wears many hats. For example, business owners devote more time to sales, marketing, and customer relationship management than their company’s finances. However, without proper bookkeeping, the rest of your business may suffer. In a nutshell, bookkeeping is the process of recording and evaluating your company’s financial transactions. Therefore, any bookkeeping errors can result in lost money or avoidable losses. Furthermore, you can’t fix an inefficiency until it’s been identified. As a result, this blog on “Top 5 Challenges in e-Commerce Bookkeeping Services” identified the most prevalent bookkeeping challenges faced by firms.
Before moving forward to the main topic, we will first discuss bookkeeping services.
What are Bookkeeping Services?
Bookkeeping and Accounting are terms that can be used interchangeably. However, in reality, Bookkeeping and Accounting serve distinct purposes. Bookkeeping is a component of accounting that records all financial transactions. As a result, bookkeeping differs from accounting. Bookkeeping services aid in the organization of financial records, which allows management to analyze corporate performance. It enables the company to provide a consistent gauge of its performance. Moreover, the value of the bookkeeping market is projected to increase to $81.5 billion by 2023, rising at a CAGR of 3.51%.
The primary step in the accounting process is bookkeeping. Bookkeeping is a practice that deals with the task of categorizing and recording financial data in an organized manner. As a result, bookkeeping is a type of record-keeping that aids in the accounting process. Furthermore, bookkeeping aids in the preparation of the business’s financial statements at the end of each fiscal year. Furthermore, bookkeeping aids in the identification of monetary transactions and occurrences, which eventually aids in the maintenance of correct financial accounts. Preparing reference documentation for financial transactions and other business activity is part of the bookkeeping process.
Common Accounting Foundations for All Businesses
Before delving into e-Commerce accounting issues, it’s worth reviewing the fundamentals of good accounting, which apply to all businesses, traditional and online. Good accounting practices include the following:
- Get a bookkeeping system that tracks how money enters and exits your business
- Use a company bank account and reconcile all transactions against your bookkeeping system
- Understand your income, expenses, and earnings, as well as how much money you have available to pay employees, purchase merchandise, and fulfill other critical business demands
- Calculate and pay taxes on an estimated quarterly and annual basis
Once you’ve mastered the fundamentals, it’s time to tackle the accounting challenges of e-Commerce.
The next segment will discuss the challenges in e-Commerce bookkeeping services.
Top 5 Challenges In e-Commerce Bookkeeping Services
Inventory management, calculating taxes on internet sales, and running an online company are all demanding chores. But, just like a normal business, e-Commerce accounting has to be done. Unfortunately, it isn’t easy to keep track of the number of things sold, returned, and exchanged. Furthermore, e-Commerce websites accept orders from all around the country and, in some cases, the world, making it impossible for them to examine sales taxes. As a result, E-Commerce bookkeeping presents a slew of challenges that regular businesses do not face. Some of the challenges encountered in e-Commerce bookkeeping services are as follows:
Challenge 1: Assessing, Charging, and Paying Sales Taxes
The first challenge is to assess, charge, and pay sales taxes. Sales taxes are additional taxes applied to the costs of products when sold to customers. You will add these fees to the amount customers pay and then pay the applicable taxes to the appropriate authorities. The issue is that sales tax rules and rates vary greatly based on where you and the client are located, whether you have a “sales tax nexus,” and a variety of other variables.
This can soon become very difficult. For an e-Commerce business, doing everything manually adds a significant accounting overhead. However, you can overcome this issue by doing the following:
- Knowing when you’ll have to pay sales tax and who you’ll have to pay it to
- Investigating how Amazon and other third-party marketplaces handle sales tax
- Investing in a shopping cart and accounting software that calculates and applies sales tax for you – Avalara and TaxJar are ideal examples.
- Paying sales taxes to the appropriate authorities
Challenge 2: Calculating E-Commerce Costs and Overheads
e-Commerce businesses must deal with a wide range of expenses. These are some examples:
- The selling price of the item
- Third-party marketplace selling costs
- Customer service and assistance
- Marketing and advertising
- Picking, packing, and shipping
- Rent, utilities, and other operating costs
- Administration and Software
This all adds up quickly, and you must cover all of these expenses from your profit margin on every product you sell. As a result, to develop a decent profit margin and price your goods effectively, you must first analyze your costs. You can do that by:
- Keeping meticulous records of all costs associated with selling things
- As part of your bookkeeping, categorize these expenses
- Using your accounting software’s “Profit and Loss” report
- Checking the overall cost of each item regularly
Once you’ve determined your costs, you may alter your profit margins and pricing to cover your overheads while giving you room to grow your firm.
Challenge 3: Paying Third-Party Marketplace Costs
Many internet retailers use third-party platforms such as Amazon, Etsy, or eBay. If you sell on these websites, you are aware that you must pay a fee to offer your products. Both eBay and Etsy charge listing fees and a percentage of the final selling price. Amazon charges various fees, including a full “Fulfillment by Amazon” service that does a lot of the heavy lifting but comes at a high cost!
All these costs strain your profit margins; therefore, it’s critical to understand and manage them as much as possible.
- Analyze the fine print of any third-party marketplace’s seller agreement and charge schedule
- Consider these additional costs while determining selling prices
- Use specialized software to build a list of things and determine the total fees you’ll need to pay
- Check your listing fees against the fees imposed by the marketplace
- Double-check your listing fees by taking advantage of large-scale listings and other specials
- Include all of the listing fees in your accounting program as expenses
Challenge 4: Handling e-Commerce Transactions in Different Currencies
As your e-Commerce firm expands, it may be time to consider foreign expansion. When doing this, you should accept payments in the buyer’s currency and convert them to your currency before putting them into your bank account. Unfortunately, when it comes to foreign currency exchange rates, there might be a lot of hidden expenses.
- Look for shopping cart software that allows you to charge many currencies and accept multiple payment methods.
- Examine your credit card payment processors’ exchange rates and how they compare to the baseline, mid-market rate
- Use accounting and bookkeeping software that supports numerous currencies and bank accounts.
Challenge 5: Having Enough Stock to Meet Forecast and Demand
Because of the pandemic, the supply chain has become front-page news. Because of these difficulties, e-Commerce businesses must be more prepared to meet client demand.
- Analyze the demand for each e-Commerce product line and speak with suppliers and manufacturers about when you may expect to get supplies
- Set solid forecasting and predictions to manage rising client demand, especially during peak seasons
- Keep careful track of when you spend money with suppliers to avoid accumulating too much inventory.
- You may add alternate suppliers and manufacturers to make your supply chain more resilient.
Accounting for appropriate e-Commerce enterprises might assist you in identifying and dealing with problems as they arise. This frequently entails locating the appropriate software or carefully reading the fine print of your agreements.
Although this might appear to be a lot of work, it will prepare you for success. For example, specialized e-Commerce shopping carts, sales tax, or listing software that interfaces with your bookkeeping will significantly simplify your accounting. Furthermore, knowing agreements with marketplaces and suppliers allows you to keep track of your expenses and services.