Running an e-commerce business comes with some inherent opportunities and challenges, but for many e-commerce business owners, one of the biggest obstacles is accounting. For this reason, many e-commerce businesses rely on professional accountants to handle everything from managing their books to tracking inventory and following compliance regulations.
If you work in accounting and want to better serve e-commerce clients, it’s important to understand common accounting challenges in e-commerce, how to address them and how to leverage the latest tools and technologies effectively.
Key Accounting Challenges in E-commerce
So, what are some of the most common accounting challenges faced by e-commerce businesses? While these can vary from one business to the next, a few common obstacles are outlined below, where we explore how to do accounting for e-commerce businesses.
Tax Compliance and Sales Tax Regulations
When e-commerce businesses sell their products across different state lines, they may need to comply with many different sales tax laws. This, in addition to federal tax regulations, can add a layer of complexity that brick-and-mortar businesses selling in a single location typically do not need to worry about.
Inventory Management for Online Sales
Many e-commerce businesses also struggle with maintaining accurate inventory management, which may include keeping updated levels of stock on fast-moving inventory. The larger the business and the more products are being sold, the more difficult this can become.
Tracking Transactions Across Multiple Platforms
Because many e-commerce businesses sell across a variety of platforms using different payment processors, things can also get complicated here. This may be especially true when it comes to tracking merchant fees, accounting for different processing charges and documenting transactions across a number of platforms.
Managing Customer Refunds and Returns
Refunds and returns are inevitable when running an e-commerce business and managing these can be particularly challenging and time-consuming. Accounting for re-stocking fees, issuing refunds and handling damaged/broken items can have a negative impact on the company’s bottom line if special precautions are not followed.
Managing Payment Processors and Merchant Fees
For e-commerce businesses that sell their products or services using different payment processors and marketplaces, having accounting systems set up to manage and integrate these gateways is a must.
Integrating Payment Gateways With Accounting Systems
Ideally, e-commerce businesses should have an integrated payment gateway set up that will automatically sync transaction data from each sale with the company’s existing accounting software. This can make processes like payment tracking, reconciliation and invoicing much more accurate and less time-consuming when compared to manual entry.
Handling Fees and Reconciliation
E-commerce businesses should also have accounting systems in place that track handling fees charged by different merchants or payment gateways and automatically reconcile them with accounting software or other transaction data. This can be a great way to pinpoint any inaccuracies or discrepancies so they can be addressed sooner rather than later.
Effective Bookkeeping Practices for E-commerce
Accounting and bookkeeping go hand in hand, so it is important for accounting professionals working with e-commerce businesses to follow some basic best practices for streamlined bookkeeping, reconciliation and expense tracking.
Setting Up a Bookkeeping System
One of the most important things accountants can do to keep e-commerce businesses running smoothly is to set up a reliable bookkeeping system that will integrate seamlessly not just with their e-commerce platform, but with their accounting software as well. This will keep cash flow, inventory, sales, expenses and all other relevant information recorded and up-to-date without creating additional work.
Regular Reconciliation and Expense Tracking
Accountants should routinely reconcile all business accounts, ideally on a set schedule, such as quarterly. Additionally, properly labeling and tracking categories of business expenses, like marketing, payroll and processing fees, helps avoid future complications.
Streamlining Payment Processing
Accountants can also help e-commerce clients streamline their payment processing by helping their customers select a single payment gateway that will integrate seamlessly with their existing systems. From there, finding ways to optimize the checkout process and accept as many payment methods as securely as possible can improve the customer experience and potentially lead to repeat sales.
Financial Reporting and Analysis
Careful financial reporting and analysis is another important aspect of accounting for e-commerce businesses. From understanding the most important financial metrics in e-commerce (and how to track them) to following best practices for cash flow management and forecasting, there are a few tips accountants should keep in mind.
Understanding Financial Metrics for E-commerce
E-commerce businesses may rely on some of the same financial metrics as traditional businesses, but there are some additional ones that accountants may need to focus on. Some examples of these include:
- Conversion rates
- Gross margin rates
- Average order value
- Customer lifetime value
By knowing how to track and measure these KPIs, accountants can better serve their e-commerce clients.
Importance of Cash Flow Management
Cash flow management is especially important for e-commerce businesses. These companies need to ensure they have enough cash available to cover a wide range of costs and expenses at any given time. From purchasing more inventory to funding future growth, accountants need to manage cash flow efficiency to keep e-commerce businesses growing and thriving.
Budgeting and Forecasting for Growth
Speaking of growth, another important aspect of an accountant’s job in an e-commerce setting is budgeting and forecasting for future growth and scaling. Specifically, accountants need to be able to create detailed budgets and financial plans based on historical sales data, market trends and other factors to drive growth strategically and sustainably. This requires a great deal of skill and expertise in historical data analysis, demand forecasting and market research.
The Role of Technology in E-commerce Accounting
Fortunately, there are plenty of tools and other resources that accountants can rely on to streamline their work and save time without sacrificing accuracy in the process.
Cloud-Based Accounting Solutions
Cloud-based accounting software is ideal for accountants working with e-commerce businesses because it allows data to be accessed from just about anywhere and at any time. Some examples of cloud-based accounting solutions that are popular among e-commerce businesses include:
Integration With E-commerce Platforms
Some e-commerce platforms (such as Shopify, Squarespace and Salesforce) may also offer integration with certain accounting software and apps. Ideally, accountants will want to choose accounting software that allows for seamless integration, as this can save valuable time while ensuring accurate data.
Data Security Considerations
Security is another important factor when using any type of accounting software or technology. These days, a breach of customer data can tarnish a company’s reputation and have long-lasting impacts, so choosing accounting software and other technologies with plenty of security safeguards in place is a must. These may include such security features as multi-factor authentication, access control and regular data backups.
Utilizing Accounting Software for Automation
Today’s accounting software offers more automation features than ever before. These features can automate tedious accounting tasks (like data entry and financial reporting), saving accounting professionals time while increasing efficiency.
Navigating Regulatory Compliance
Another area where the accounting side of e-commerce can get challenging is in regulatory compliance. With the right education and training, accountants can stay up-to-speed on the latest requirements and keep their clients out of legal trouble.
Understanding Local and International Regulations
All e-commerce businesses need to comply not only with local regulations, but also with all regulations in the locations where they ship their products and do business. This can get complicated quickly, especially for businesses that ship products internationally and may thus be subject to customs duties, taxes or other tariffs.
Best Practices for Compliance and Risk Management
Accountants working with e-commerce businesses also need to follow some best practices for compliance and risk management. This includes understanding the laws and regulations that apply to e-commerce businesses, performing regular risk assessments and developing strategies to mitigate risks and ensure compliance.
Regular Financial Audits and Reviews
Conducting regular financial audits and internal reviews is also a must when providing accounting services to an e-commerce business. Regularly scheduled audits can ensure that any errors or discrepancies are caught quickly and can be rectified as promptly as possible.
Learn More in a Degree Program
As you can see, combining e-commerce and accounting is not always easy. Not only do e-commerce businesses tend to face challenges with inventory management and taxes, but they may also run into issues with regulatory compliance and the use of different payment gateways. At the end of the day, many e-commerce businesses rely on experts who know how to do accounting for e-commerce business in a way that is accurate and reliable.
If you are looking to better serve your own e-commerce clients, then it may be time to advance your education with a Master of Accountancy (MAcc) degree from Keiser University. In this career-oriented degree program, you can learn the skills needed to pursue professional certifications (such as CPA and CFE) while learning the ins and outs of proper financial reporting and financial management for online sales.
Get in touch with an admissions counselor to learn more about this program, our MBA in Accounting or any of the other graduate-level programs offered at Keiser University. Ready to apply? You can complete your application for admission online!
