With over 80,000 accounting firms in the US alone, there’s no shortage of options for businesses, regardless of size or industry.
But how do you choose which accounting firm works best for your ecommerce business?
In this article, we’ll help you understand the role of ecommerce accounting firms in business, elaborate on considerations for choosing an accounting company, and explain how to pick accounting services that suit your needs.
Understanding Ecommerce Accounting
But first, what is “ecommerce accounting” and why do you need a specialized accounting service for your ecommerce business?
Here’s why:
Definition and Scope
Ecommerce accounting, at its very basic, is financial management for online businesses. The process involves recording, organizing, and analyzing all of your online store’s financial transactions. These transactions include overhead, ecommerce marketing expenses, inventory costs, shipping fees, payment processing fees, sales revenue, etc.
Ecommerce accounting ensures an accurate picture of your online store’s financial health. It provides insights into profitability, cash flow, and areas for improvement.
Ecommerce Accounting versus Traditional Accounting
Because online sales are different, ecommerce accounting is different from traditional accounting. It requires more automation and technological solutions.
Transaction Data
In brick-and-mortar stores, sales directly reflect cash flow. Ecommerce transactions might involve delays between the sale and receiving the funds. This means that you need proper tracking of income accruals.
Multiple Sales Channels
Ecommerce stores can sell through marketplaces, their own website, social media, and other channels. This means that accounting needs to bring together data from all these sources.
Inventory Management
You need to track inventory levels in your ecommerce business, including costs, storage, and fulfillment. Inventory management is usually less complex for brick-and-mortar stores.
High Volume of Transactions
Traditional accounting often deals with a more manageable volume of transactions from a single physical store. Most ecommerce stores process a larger number of sales, each with its own data points. All of this data needs to be consolidated from various platforms.
Real-Time Insights
Ecommerce businesses often operate in a fast-paced environment. This means that you need quick access to financial information.
The Role of Ecommerce Accounting Firms
Ecommerce accounting firms provide more comprehensive services than traditional accounting firms. This is because they need to cater to the specific needs of online businesses.
Understanding of Multi-Channel Sales Landscape
The accounting firm you choose should also have specialized knowledge and skills in dealing with multi-channel sales platforms. This means a unique blend of technical knowledge and business acumen.
Ecommerce accounting necessitates a familiarity with the various sales channels used in ecommerce. This includes a company’s own website, online marketplaces, social media platforms, and affiliate marketing programs. Knowing the specific data formats and reporting structures used by each sales platform is also important.
Bookkeeping and Account Reconciliation
This includes recording all financial transactions, categorizing them accurately, and balancing the books. Ecommerce accounting firms will be familiar with the unique transactions involved in online sales, such as refunds and chargebacks.
Tax Management
Ecommerce accounting firms can help you with tax planning to minimize your tax liability. They can also help you ensure you are complying with all federal, state, and local tax regulations.
Ecommerce businesses need to follow complex sales tax regulations across different states and countries. Accounting firms familiar with the ecommerce world can help you manage all of this. Tasks include registering for sales tax, calculating the correct amounts to collect, and filing your sales tax returns.
Inventory Management and Accounting
Accurate inventory tracking is crucial for ecommerce businesses. Ecommerce accounting firms can help you set up your system to manage inventory levels, costs, and fulfillment. They can also help you with inventory valuation, cost of goods sold calculations, and other tasks.
Payment Processing Fee Reconciliation
Ecommerce businesses pay fees to payment processors for every transaction. Firms that understand online payments can help you reconcile these fees to make sure you’re being charged correctly.
Fraud Detection and Prevention
A bane of the ecommerce world is fraud. Proper ecommerce accounting will incorporate measures to detect and prevent fraud, particularly by reviewing transactions for suspicious activity.
Read more about Ways to Protect E-commerce Transactions from Online Fraud.
Financial Reporting and Analysis
Accounting firms familiar with ecommerce businesses can generate financial reports from different angles. The data provides insights into your business’s performance, such as profitability, cash flow, and customer acquisition costs.
These firms can also help you analyze these reports to identify areas for improvement. Consulting on financial controls and procedures is especially helpful. They can advise you on how best to protect your business from fraud and errors.
COGS Calculation and Budgets
Cost of Goods Sold is a crucial metric for ecommerce businesses. The right accounting firm will calculate accurately, which is essential for determining your profitability. They can also help you create budgets and forecasts to help you plan for the future of your business.
Multi-State Sales Tax
You want to hire a firm that has specialized knowledge and skills in dealing with sales tax in multiple states. This is a complex area within ecommerce accounting, and should be left in the hands of professionals.
In-Depth Knowledge of Sales Tax Nexus
The right accounting firm understands the various ways a business can establish nexus in a state. This includes different types of presence that trigger a sales tax collection obligation:
- Physical presence – warehouses, offices
- Economic presence – transaction or sales threshold
- Click-through nexus – affiliate marketing
You need a firm that can stay updated on constantly evolving nexus rules, which have significantly impacted ecommerce sales tax regulations.
Sales Tax Rates and Exemptions
The best firms know the different sales tax rates across all US states and localities. They understand product taxability rules and can distinguish between taxable and exempt goods in different states. They also keep abreast of potential sales tax holidays or exemptions relevant to specific products or industries.
Sales Tax Registration and Filing
Having the ability to efficiently register for sales tax permits in all the necessary states is a huge help. Don’t underestimate having access to expertise in filing accurate and timely sales tax returns in various state formats.
International Transactions
The best accounting firms have the specialized knowledge and skills to handle businesses that deal with international transactions. They have a comprehensive understanding of international trade regulations, currency fluctuations, and additional complexities compared to domestic sales.
International Trade Regulations
You can tell if a firm can handle international sales if it knows a lot about import/export regulations. These include customs procedures, trade agreements, and documentation requirements for the countries a business operates in.
Understanding international trade controls, like export licenses and sanctions, is important. These regulations can restrict the movement of certain goods. An ecommerce accountant needs to stay updated on changes to trade policies and regulations that could impact your international transactions.
Currency Fluctuations and Foreign Exchange
Make sure the firm you’re considering has a strong understanding of foreign exchange markets and the factors influencing exchange rates. They must have the ability to assess the impact of currency fluctuations on your profitability.
Furthermore, an ecommerce accountant should be able to help you develop strategies to mitigate foreign exchange risk. Knowing the different payment methods used in international trade, such as letters of credit and documentary collections, is also important.
International Tax Compliance
Taxes across the US states alone can be complex. Understanding international tax laws and treaties that may apply to ecommerce businesses can be even more daunting.
Your accountant must know about things like double taxation treaties and value-added tax regulations. They must be able to calculate and file international taxes accurately. Moreover, they need to stay updated on the potential tax implications of international sales and fulfillment strategies.
International Accounting Standards
Familiarity with International Financial Reporting Standards (IFRS) or other relevant international accounting standards is important. Knowing which standards apply depends on the business’s needs. Your accountant needs to know how to reconcile financial statements prepared under different accounting standards, too.
How a Specialized Ecommerce Accounting Firm Adds Value
An accounting firm specializing in ecommerce understands the high-volume, fast-paced nature of online stores.
Firms with no experience in ecommerce accounting don’t have the systems or in-depth understanding of the complex financial structures of ecommerce platforms to manage your financials accurately.
Here are the benefits of hiring an ecommerce-specific accounting firm:
- Clear inventory tracking: Get a true view of your margins when you track inventory, COGS, fulfillment fees, and landed costs in real time.
- Automated reconciliation across sales platforms: Selling on multiple platforms? No problem. Your ecommerce accounting firm can pull transactions from Shopify, Amazon, and wherever else you’re selling and reconcile the data, so your books reflect actual sales, fees, and payouts.
- Accurate cash flow forecasting: Ecommerce accountants understand ecommerce seasonality, marketing cycles, re-order lead times, and market trends. This helps them make cash flow projections that inform real ecommerce decisions, like when you need to increase inventory or decrease ad spend.
- Tax prep and compliance: Avoid penalties, overpaying taxes, or under-reporting revenue. An ecommerce accountant makes April a breeze, not a yearly last-minute tax scramble.
- Smooth tech integration: An ecommerce-specific accounting firm also can ensure seamless integration with your accounting software. No more pulling data manually and inconsistencies in reporting.
Need help sorting out your books? Start with ecommerce-specific bookkeeping.
At EcomBalance, we focus exclusively on ecommerce bookkeeping, with deep knowledge of platforms such as Amazon, Shopify, and eBay. We are trusted by 6- to 8-figure ecommerce businesses for monthly financial analysis, bookkeeping, and proactive support.
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Selecting the Right Ecommerce Accounting Firm
Aside from knowledge and skills, we consider a few other factors when choosing an ecommerce accounting firm.
Experience
Experience in the ecommerce sector is vital. Prioritize looking into firms with a proven track record of working with ecommerce businesses. Experience in your specific industry or business model is a bonus.
Make sure that the firm has the expertise you need. First, assess your specific needs, such as basic bookkeeping versus more advanced services like tax planning and international transactions. Consider not only your existing needs but your future business goals as well.
Think about any specialized services you might want, including tax planning and compliance, inventory management, and financial reporting.
Technical Skill
Technological proficiency and software integration capabilities are great skills to look for. Most ecommerce businesses are so much better with accounting software, so you’ll want a firm that can handle technology and integrations.
Ask any prospective accounting partner about their experience with popular ecommerce platforms and accounting software like Shopify with Xero integration or QuickBooks for Amazon. Evaluate their data analysis and reporting abilities, too, so you can get valuable insights from them about your business performance.
Additional Considerations
Here are other non-accounting-related factors that will affect your working relationship with your chosen firm:
Communication and Availability
Look for a firm that prioritizes clear and consistent communication. You want them to keep you informed about your finances and any potential issues. Check their availability and preferred communication methods so you have a level of accessibility that suits your needs.
Fees and Pricing Structure
Get several quotes and compare them to understand different pricing structures. Choose a firm that offers transparent pricing that aligns with your budget and the complexity of your needs.
Scalability and Growth
If you plan to grow, choose a firm that can scale its services as your business grows. They should be able to adapt and provide ongoing support for your financial success.
Best Time to Hire an Accounting Firm for Ecommerce
The earlier you bring an ecommerce accountant in, the fewer financial headaches you’ll meet along the way.
Some businesses may opt to do their accounting themselves, such as when they’re just starting out (to get a feel of cash flow) or when managing a very small inventory.
But when your financials start to get blurry, or when you can’t confidently say what your margins are, it’s a clear sign that you need a professional to sort your finances ASAP.
Here are other signs you need an ecommerce accounting firm now:
- Sales volume has reached $500K to $1M or more
- You’re scaling across multiple sales platforms
- Sales structures are getting more complex
Getting the Most Out of Your Ecommerce Accounting Partner
Your ecommerce accounting firm is your strategic partner, not just someone you call at tax season.
To get the most out of your partnership:
- Communicate your goals: Ensure a right fit from the start by sharing your goals.
- Don’t set and forget: Set a regular schedule for updates, and ensure you’re reachable for any concerns.
- Review financials monthly: Review your financials regularly to ensure they align with your goals and to give you ample time to course-correct when needed.
Frequently Asked Questions (FAQs)
Let’s explore some of the most common questions about ecommerce accounting firms:
How Often Should I Consult With My Ecommerce Accountant?
We recommend that you consult with your ecommerce accountant at least once quarterly, even for smaller businesses. If you run a more complex business with high sales volume, a large inventory, or multiple sales channels, consult more frequently. This is also true if you have complex tax considerations or are approaching tax deadlines.
If you’re a new business owner or are experiencing significant growth or changes in your business model, more frequent consultations can be helpful for guidance and strategic planning.
Ultimately, you should consult with your accountant as often as you feel comfortable and need their expertise.
What Is The Best Way To Integrate New Accounting Software With Existing Systems?
There’s no one-size-fits-all answer to perfectly integrating new accounting software with existing systems, but we can give you a few guidelines:
- Assess your current accounting system’s capabilities to see if it can integrate with other applications, and what data it stores.
- Look for accounting software that offers integrations with your existing systems. Popular options often have pre-built connectors for common business tools like CRM, inventory management, or e-commerce platforms.
- Choose the integration strategy you want to use:
- Direct integration is complex and may require technical expertise, but it creates a real-time connection between the applications for seamless data flow.
- Import/Export is simpler, but involves regularly exporting data from one system into a format compatible with the other, which creates a time lag between data updates.
- Set up strong encryption and access controls to protect sensitive financial information.
- Thoroughly test the integration to ensure accurate data transfer.
Can Ecommerce Accounting Firms Help With International Tax Compliance?
Some ecommerce accounting firms can handle international tax compliance, but it depends on their specific area of expertise.
Always ask about a firm’s experience with international tax compliance. Look for firms that have specific experience working with businesses in your target markets.
Ask about the specific international tax services they offer, like tax registration in foreign countries. Make sure they can help you navigate tax treaties and minimize your international tax burden, too
Check that the accountants on staff have the proper credentials and certifications for handling international tax matters. For complex international tax situations, look for a Chartered Global Management Accountant (CGMA) or someone familiar with International Financial Reporting Standards (IFRS).
What Should I Do If My Ecommerce Business Is Audited?
If you get a notification of an audit, request a clarification letter outlining the purpose and timeframe of the audit. This will specify what information the auditor is looking for and the period they are reviewing.
Start collecting relevant documents and organize them chronologically for easy access. Consider consulting with an accountant or lawyer experienced in ecommerce audits to guide you through the process. They can help ensure that you comply with all requests and represent your business if necessary.
Cooperate and be transparent with the auditor. If you cannot meet a deadline, communicate clearly and request an extension.
What Reports Should I Expect From An Ecommerce Accountant?
A reliable ecommerce accountant will give you these reports every month:
- P&L statement: Reveals your profitability per product or merchant platform
- Cash flow statement: Shows your cash inflow and outflow.
- Balance sheet: Helps you monitor the value of your inventory.
How Much Does It Cost To Hire An Ecommerce Accounting Firm?
Hiring an ecommerce accounting firm can cost between $300 and $1,500 per month. Lower-cost contracts typically cover basic accounting, while more expensive packages cover additional services, like sales tax reporting and payroll.
What Is EcomBalance?
EcomBalance is a monthly bookkeeping service specialized for eCommerce companies selling on Amazon, Shopify, eBay, Etsy, WooCommerce, & other eCommerce channels.
We take monthly bookkeeping off your plate and deliver your financial statements to you by the 15th or 20th of each month.
You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.
Interested in learning more? Schedule a call with our CEO, Nathan Hirsch.
And here are some free resources:
- Monthly Finance Meeting Agenda
- What Is a Profit and Loss Statement?
- How to Read & Interpret a Cash Flow Statement
- How to Read a Balance Sheet & Truly Understand It
Conclusion
By outsourcing your ecommerce accounting to a qualified firm, you can free up your time to focus on growing your business. You can also be confident that your finances are being handled by experts who understand the unique challenges of ecommerce.
