Eleven years ago a Chicago Retailer came to me with a simple problem. Between his physical location and online presence, he was grossing almost $4M annually.
He also went further into debt every year because he consistently lost money.
The owner was beside himself. He looked at me, had no idea what to do, and said, “With all of these sales, you’d think that I could turn a profit.”
One of the difficulties he had was that his financial statements were completely inaccurate and hopelessly tardy. Doing financial statements for internet businesses is very difficult for most accounting firms.
Where many would have only a few transactions, internet retailers will have hundreds. The problem is that accountants are traditionally taught to handle transactions one at a time.
Completing this job in that manner would mean that the financial statements would always be late, and that the accounting fees would be egregious. This, and other factors, were keeping my new client broke.
Our firm embraced internet retailing early in the process and developed ways to batch transactions that minimized our time on the jobs and increase the accuracy of the financials. Our proprietary methods not only keep our accounting fees down, but also maintain our high standards and quality controls.
Eleven years later, the tax return we just completed for this company had sales of just over $4.8M and a 9% profit. How was this possible?
Let me leave you with this…
Internet retailers face business difficulties that others don’t understand. Many think that just because they buy something on the internet, that they’re getting it a great deal.
In many instances, that couldn’t be further from the truth. Let’s use an example to explain this phenomenon.
Joanne B. Owner has a retail store where she also sells the items she stocks on various internet platforms. She maintains a 100% markup on of her sales.
If the product costs her $1, she sells it for no less than $2 and has the same pricing structure on the internet. She needs a full markup to maintain her profits.
The problem is that it isn’t cheap to sell products virtually. Amazon, for example, charges about 33% of your sales price to handle transactions.
In this example, they would charge $0.67 on a $2 sale. As such, Joanne would only have a margin of $0.33, and would lose money on her internet traffic.
This, and other factors like pricing competition for individual sales on internet platforms, was putting my client in the red.
But the thing about internet retailing is that it really doesn’t matter much which items you sell. The retailing process from one item to the next is, in most cases, rather similar.
We put a solid financial reporting process into place for this customer, so he knew exactly where he was, and where his losses were being generated. We then provided advice saying that he should replace his unprofitable products with others that had less pricing competition and more margin.
Using Joanne’s example, in order to receive a $1 margin, she would need to charge $3 on her $1 purchase, with Amazon charging $1. In many instances, even before you get to the transportation costs, buying items on the internet will actually cost more.
Our client immediately rebelled, saying that it wasn’t possible for him to increase his margins. But it was possible to get those margins he needed if he sold different products that had less pricing competition. He initiated this, and over time became profitable and paid off all of his lines of credit.
The purpose of business is profit, and not just any profit. It has to fit the owner’s family, and provide a lifestyle that makes sense.
This client didn’t need to raise his top line. He just needed to sell different products that would give him the lifestyle he needed.
To this day, he credits us with saving his business. He says that if he’d stayed on that course, he would have ended up in bankruptcy.
I credit the salvation of his business to his ability to listen, understand, and make the hard choices that were necessary to move his company forward.
We can only do the numbers and give the advice. Someone needs to be the agent of change.
Einstein said it best. “The definition of insanity is doing something the same way and expecting a different result.”
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300
www.SalarySolutions.net
www.AccountingSolutionsLtd.com
Note that the only professional services provided by Accounting Solutions Ltd. are those specified in a written communication from our office detailing the scope of services to be rendered and the terms and conditions applicable to the engagement.