Sales tax compliance is a priority to protect your online retail business from fines, penalties or even the closure of your storefront. But as you know, e-commerce accounting is more than just filing taxes. It involves keeping meticulous records and analyzing data to grow your company and stay in line with the law.
From monitoring sales trends to managing inventory levels and filing taxes, here are some common challenges that come with accounting in this industry:
Taxes
Seller fees, marketplace commissions, payment processing costs and shipping fees all factor into profitability. Accurate tracking of these expenses is essential for informed pricing decisions and cost efficiency analysis.
Inventory
One of the leading causes of business failure for small companies is stockout or overage issues due to inventory control problems. For e-commerce companies that have more lines to manage — such as products in production through those sold, restocked, returned or scrapped — the task can be mind-boggling.
Accounting
Whether they’re fixed assets bought directly by individual customers or prepaid marketing expenses charged months ago to a credit card on file, they could still impact net income today if not expensed correctly. Likewise, revenue recognition often differs significantly between online retailing (subscription services) and traditional retail (at point of sale).
Managing expenses means keeping track of things like workers, materials, and services (website maintenance, shipping solutions, advertising campaigns, software subscriptions). You also need to make sure that you’re using the right technology so that all your data syncs properly. This can really help to make things more efficient.
The thing with e-commerce is that you need to know the rules for sales and income tax in every jurisdiction where you operate. It’s a lot to keep up with, but if you have someone who knows this stuff then it will be a lot easier.
Payroll
You also need to manage payroll closely on an ongoing basis. Payroll includes recording employee wages and salaries as well as calculating sales tax liability. All these numbers have to add up because if they don’t then there will be mistakes in your reporting.
To keep everything organized you’ll also want to maintain a good inventory system so that you know what products you have and when you might need more. Make sure your accounting methods accurately capture financial activities too!
E-commerce accounting is tough, but it’s worth it! By working with experienced outsourced accounting services providers to streamline bookkeeping processes and focus on growth goals. And don’t forget about modern accounting software – it can really help!