Accounting considerations for e-commerce businesses are unique. Unfortunately, many business owners are ignorant of these subtle distinctions, which leads to avoidable accounting blunders. These errors can have major financial and legal ramifications for e-commerce enterprises and their owners, and if left unchecked, they can accumulate over time.
To increase efficiency, maximize revenue, prevent fraud, and minimize tax-related fines, eliminating these types of errors should be a major focus for any e-commerce store.
Top 9 E-commerce Accounting Mistakes
If you are committing any of the following typical e-commerce accounting mistakes, it’s necessary to correct them right now with the assistance of an accounting professional:
Accountants are not all made equal. What we recommend is that you choose an accountant who is familiar with the industry in which you work. Quarterly reconciliations assist you evaluate the health of your e-commerce firm and guarantee that important issues are not overlooked.
You may decrease the spread of errors by having a single source of truth for your inventory, sales channel, vendor, and fulfillment data. Once the information is accurate, adopting automation can help to reduce mistake rates while also cutting overhead.
You won’t have any control over the following if you don’t have true inventory value:
E-commerce decisions, like those in any other firm, are based on numbers that are always changing. When it comes time to make a decision, don’t wing it; instead, be sure you have all of the information you need.
2. Mismanagement of Sales Tax
The most difficult aspect of having an online business is appropriately handling sales tax. To apply the proper fee to a customer’s transaction, sales tax must be calculated at the state and municipal levels. Once collected, sales tax must be recorded as a liability, reported to the state, and remitted according to a specified payment schedule.
Using the appropriate accounting software makes all the difference here because more complex systems, like QuickBooks Online, will calculate and account for your sales tax liability automatically.
3. Inefficient Record Keeping
Messy books are typically the result of having too many personnel with access to corporate funds, delegating financial authority to less experienced staff, or transitioning to a new accounting system.
In other cases, dishonest personnel may purposefully muddle the books in order to conceal fraudulent conduct. If your company is facing general ledger problems, cash disparities, missing retained earnings, invoice inconsistencies, or other frequent symptoms of accounting record troubles, consider hiring a third-party accountant to clear up the mess.
4. Using the Wrong Accounting Software
Some business owners who are transitioning to e-commerce after years of running a traditional retail business may be accustomed to physically managing their books. It is a huge mistake not to use accounting software to streamline and automate processes.
Running a successful e-commerce firm necessitates relying on a fast-paced accounting system. There is just no way for a business owner, bookkeeper, or accountant to efficiently keep the books for a national or international e-commerce store.
Choosing an accounting software is an important decision. The use of the appropriate software for your business type, financial acumen, and business life stage is a critical first step. Businesses that simply utilize whatever is free, easy to set up, or popular at the time may find their day-to-day operations and future growth hampered as a result of their hasty decision.
Making a wise choice regarding which accounting system to employ when beginning a firm will pay benefits in the long run by avoiding the headache and cost of having to transition to a new platform.
5. Inadequate Inventory Levels
Keeping track of inventory is always a difficulty for e-commerce businesses that sell across several platforms. Most e-commerce software suppliers do not offer multi-channel inventory tracking, necessitating the use of inventory software to keep accurate real-time data.
6. No Data Backup
Backups of data are crucial for e-commerce companies. To avoid damaged files, data loss, or other catastrophic failure, financial data should be backed up on a regular basis and preserved in a secure location. A data backup can also aid in the restoration of good records if a large-scale error arises during routine activities that would be time-consuming to correct.
7. Not Keeping Track of Reimbursable Expenses
Always keep note of expenses that are reimbursable. Failure to keep proper records for these types of expenses is equivalent to wasting money. Using a smartphone app to save and categorize expenses is another excellent approach to automate what might otherwise be a time-consuming activity. If you are unsure if an expense is reimbursable for your specific firm, consult with your accountant.
8. Too Few Bank and Credit Card Reconciliations
Bank and credit reconciliations should be done on a regular basis. Failure to maintain consistency with reconciliations (or avoiding them entirely) can result in disparities persisting through numerous reporting periods, affecting cash flow management, forecasting, and even tax computations. The ramifications can range from cash shortages to IRS penalties, as well as the possibility of fraud.
9. Employee Misclassification
E-commerce operations are more likely to hire consultants and freelancers than brick-and-mortar retail companies, making them more prone to employment misclassification difficulties. Consultants and freelancers must be classed as contract employees for tax purposes; otherwise, your company may face severe penalties and fines.
10. Not Getting Professional Help
Entrepreneurs, as a group, are more likely to handle things themselves. Whether the goal is cost savings or increased control, doing your own accounting is not a long-term solution. As your company grows, more complicated financial needs will necessitate the services of an expert accountant to manage ongoing needs and properly plan for strategic expansion.
Although there are financial dangers associated with e-commerce, don’t let that prevent you from establishing your online business. Any business has risks, but that is part of forging your own path. You’ll be able to avoid accounting risks if you have the correct processes in place and the proper tools on your side.
ContactToday CFO if you need assistance deciding which accounting services to outsource to an accounting firm. We will be delighted to discuss your specific requirements and give a recommendation.