Dodging Pitfalls: How To Manage Your E-Commerce Business With Minimal Headaches

Entrepreneurs are quick to jump aboard the bandwagon when it comes to E-Commerce based business. To be fair, for many small or new organizations stepping into the E-Commerce realm, the basic finances required to get the company off the ground may, in some cases, be significantly lower than starting up a traditional brick and mortar business. Sales can be made much quicker, fewer staff are required to deal with (hopefully) more customers, operational costs are generally diminished, the list goes on…
 
That doesn’t mean that operating an E-Commerce organization is not without its financial pitfalls. Accounting Solutions Ltd. has spent the last few years working alongside small businesses within Chicago and the broader state of Illinois as they either migrate to, or launch off with, an E-Commerce service. In many cases these budding businesses seek to further cut costs and enhance flexibility by utilizing the bevy of pieces of available accounting software such as QuickBooks or Xero.
 
This is where things start to get slippery. You see, even when programmed into a digital device, traditional accounting practices are not particularly well suited to this new entrepreneurial paradigm. Disastrous results may occur by erroneously projecting old ideas onto new ways of conducting business. Rather than becoming the next start-up that runs itself into the ground financially by exercising these dated notions, try following the advice below. As always, if you have any questions, don’t hesitate to give Accounting Solutions Ltd. a call.
 
Inventory Management Isn’t Easy
 
When you are the owner of a traditional mom-and-pop bicycle store, keeping track of your inventory is pretty easy. By perusing your transactions and records you should be able to determine exactly where you are at in terms of item cost and overall inventory value. This intrinsically changes with the advent of E-Commerce. When you are dealing with a number of different suppliers, potentially in different countries, all with different shipping times and costs, well, you get the picture. This already complex web is made even more convoluted when inversed: you may potentially be selling your products to people in a diverse array of locales, possibly even reaching out on a Global scale.
 
How to handle this? Well, for new business owners we recommend starting small, if not in terms of customer base, then at least in the scope of the products that you sell. Having an automated inventory system is key here. Even if it may be more costly in the short run, being able to allow technology to run its course when handling the solid assets of your enterprise is certainly a worthwhile decision.
 

Sales Taxes, Everywhere
 
Depending on the nature of your business, chances are high that you are dealing with a variety of suppliers that extend beyond your geographical location. Even if this is not the case, it is almost definite that you will have clients beyond the confines of your state or country.
 
Before acquiring a new supplier or customer outside your immediate jurisdiction, always be wary of the fees and taxes that will apply to your transactions. Determining where your inventory resides is a necessity here, as some states are even suing E-Commerce giants such as Amazon for failing to comply with sales taxes. This all comes full circle when it is time to file taxes, with numbers showing us that running a online business is a far cry away from working with a physical location in the eyes of the tax man: the former may have to perform as many as 20-30 monthly or quarterly filings, while the latter typically only requires one. This is where a CPA may become your best friend.
 

When It Comes To Customers, Stay Organized

 
As your E-Commerce business continues to expand and grow, the volume and variety of your customer base should be evolving in tandem. With many clients comes many transactions- not a bad thing by any means, but, unfortunately enough, technology may sometimes have a hard time keeping up. With such high volumes of data moving through your servers always be certain that the information isn’t accumulating to the point that the systems themselves give up and crash.
 
Instead of overloading your Quickbooks Online database with tons of specific information about each individual transaction, be sure to have them set up to store or ‘batch’ this information away. Whether you decide to do this daily, weekly, or monthly depends on the scale of your business, but it is an imperative piece of advice to follow. Technology is often great, but not always reliable.

 
Returns, Returns, Returns
 
Returning an item into a brick-and-mortar store is a laughably simple process when compared to the challenges posed by E-Commerce. Even when not taking into consideration the shipping and receiving component of this reverse transaction, which can in many ways provide a host of new issues, figuring out how to handle returns can be an absolute nightmare.
 
One important feature of Amazon’s return organization system revolves around the category that the product falls into. Each different group may pose a new type of accounting challenge. If the item is in good condition and is thus perfect for re-sale, then we recommend ensuring that the product returns to a central office or warehouse for further inspection. If your management system is not carefully coordinated to handle these returns, then prepare yourself for a logistical nightmare as you calculate where it belongs within your broader stock.
 
On the other side of things, you must have a way of determining whether or not the item was damaged upon being shipped or if the customer themselves are the source. Why is this important? Well, you better know whether or not you should be billing the original supplier or (potentially) flagging the customers’ account. If you return it yourself, then your accounting software better be quick to indicate this in the books or you may find yourself steadily leaking profits.
 

The bounty of opportunities presented by E-Commerce businesses could not be more visible than it is today. To all of those deciding to be a part of this phenomenon, we congratulate you on embracing the changes that have been steadily altering how we view and conduct business over the past decade or so. With this compliment comes a warning: accounting in this digital dimension is no easy task, and there are new hurdles and innovations that spring up on a regular basis. Stay wary of the accounting software that you use, and dedicate extra time to ensure that things are running in a transparent and linear manner. We hope that all of the information that we have provided is beneficial to your services and await any and all concerns or questions that you may have for our talented CPAs.

Chris Amundson is President of Accounting Solutions Ltd. located in Chicago, Illinois

Chicago Accounting Firm & Tax Solutions for Small Businesses

Last updated on October 12, 2018
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