Managing finances has always been a tough ask for E-commerce businesses. Most industries face difficulty in managing inventory, returns, etc. So, here in this article, you will know how the accounting for an E-commerce business is being challenged and go through at the same time for E-commerce sellers.
1. Challenge of maintaining sales tax liability- The first major challenge faced by businesses in E-commerce accounting is managing sales tax. For example- If any E-commerce channels tend to transfer your inventory to a particular state, then you are obliged to collect the sales tax for providing sales to the resident of that vary state.
2. Tracking cash flows- Businesses must have a bank account to know their earnings. The best and easiest way to know how much money the business earn, is by watching their cash flow.
Tracking helps businesses to have a full record of their moves i.e. where to spend money and what to expect in the coming week. Here are the following tips to improve the cash flow-
The first rule is to never pay anything earlier, even if you have some pays due in 20 days then pay it on the 20th day itself
Businesses must keep a reserve in a bank account to meet any emergency.
3. Understand the cost of goods sold- Cost of goods sold is the direct expense. While calculating the cost of goods sold, the cost to make inventory is also included. Therefore, the total cost of goods sold includes the raw material to make the product, labor, and cost of packaging.
4. Calculation of all other expenses- Accounting is not tough when once you get to know about all the other costs. Costs are directly tied to the sales volume. Any expense that does not increase with selling more units or products is known as fixed expenses that do not include in the cost of goods sold. Hence, the business must categorize all the expenses to reduce the complications in business.
5. Tracking sales and profit before tax- Tracking the sales and profits before-hand, helps businesses to manage the money in the right way. They get to know at the earliest if any issue arises, then they have enough time to make their efforts. If the company is into paid marketing, then the owner must need to look at the budget first to make further changes.
6. Managing inventory is a complex task- Inventory management is not as easy as it seems. The-third party merchant faces this problem in their day to day life who sells their services via different channels. It also becomes very challenging when it comes to the seller who needs to have an eye on the production. But you can take help of the best accounting firms for this.
E-commerce accounting is unique as well as challenging at the same time. Every business must know how to deal with such complexity to run a smooth business to attain long term goals. In starting, you may find it difficult to understand the accounting rules to recognize the revenue, or tracking sales, but it will lead you to save money at tax time. Moreover, one can take the help of accounting software us to manage the entire process hassle-free.