If you went to a farm and saw a zebra running with the horses, you might take a second look to make sure your eyes weren’t playing tricks on you. Even if they are directly related, zebras and horses have a few major differences. Besides having a whole different look, zebras are also slower than horses and take more work for those who raise them. They are more hostile and cranky; less likely to submit to a master. Likewise, ecommerce accounting is more complex than accounting for other companies. It has more moving pieces like channels, platforms and payment processors. It’s no wonder the price of ecommerce accounting is higher. It’s vital to understand this so you aren’t paying too much or too little for your ecommerce accounting services.
So let’s say normal accounting is a horse, and ecommerce accounting is a zebra. Although there are a lot of similar aspects to them both, you are looking at a totally different beast.
Bookkeepers Don’t Understand Ecommerce And Often Get It Wrong
A bookkeeper or accountant who has a lot of experience in their field, may still not be qualified to do ecommerce accounting without a lot of training first. It might be smart to outsource their training to an experienced firm. At least until they have a better grasp of how to account for your ecommerce company. If you hire an accountant or bookkeeper without an ecommerce background, understand that they may not get the accounting completely accurate. (Not cool when you are trying to make decisions based on financial information). If they understand the challenges of ecommerce accounting, and want to figure it out, make sure to factor in extra time and training into the cost of hiring them. The truth is that ecommerce businesses have a lot of accounting differences when compared to regular companies.
Ecommerce Accounting Has More Steps
Unlike a typical business, ecommerce companies have to go through sales channels instead of their bank account. Some even go through multiple sales channels. And each sales channel can have many payment processors they process through. This means that instead of being able to reconcile everything directly to a company’s bank account, ecommerce accountants have to reconcile from channels to payments processors and then to the bank account. They also must pull data out of payment processors and that’s another extra step. This is more time consuming and not as clear as accounting for non-ecommerce businesses. It takes more time and preparation even for experienced ecommerce accountants, and therefore is more expensive.
(For more info on sales channel accounting click here.)
Even if your accountant has a background in ecommerce, there are other things that make the price of ecommerce accounting steep. Figuring out what a business owes for sales tax is tough for online businesses. You have to find out if you have nexus in a state or local area. Nexus laws change all the time, so this means that your accountant has to stay current. They must find out which state laws have changed and decide if your company meets the guidelines to be taxed by them. Next, they can help you setup your sales channels to automatically collect sales tax. And finally, they need to help you register and pay taxes to the required states. This takes a lot of time and attention that accountants at other businesses don’t need to worry about.
(For more info on how to be sales tax compliant click here.)
Inventory Management Is Complex
Another factor to think about is inventory management. Ecommerce companies who outsource steps in their inventory cycle can end up having “lag-times”. If your cash is tied up in stock then this can create a cash shortage. Accountants can track Inventory Turnover and Days-in-Inventory. This can help product-based businesses more effectively manage their inventory. It takes a lot of time for an accountant to make sure your inventory cycle is optimal.
(For more info on inventory management click here.)
The Price of Ecommerce Accounting
There is a reason ecommerce accounting costs more. Zebras may be related to horses, but according to Google they are a lot more work. Similarly, it takes experience and a grasp of all the steps involved to correctly do ecommerce accounting. It also takes knowledge and research when it comes to things like sales tax nexus and inventory management. It is crucial to know that it costs more to hire an ecommerce accountant so your wallet won’t be taken by surprise when you hire an ecommerce accountant.
For more info on hiring a Guru to help with your accounting needs click here.