Ecommerce & Accounting

Scott Scharf

@catchingclouds

We Speak Ecommerce

Agenda

•Ecommerce Businesses

•Ecommerce Overview

•Ecommerce Accounting

•Ecommerce Technology

Ecommerce Businesses Lots of variety

Ecommerce Business Types

•Types • Brand

• Wholesale

• Retail arbitrage

•Channels • Single vs. multiple channels

• Marketplace or shopping carts

• B2C, B2B, or both

• Retail, popup stores

•Fulfillment • Self-fulfilled

• 3PL warehouse

• Amazon FBA

• Drop shipping

• US only

• US expanding internationally

• International expanding into the US

Ecommerce Overview The wild world of ecommerce

Marketplaces

Shopping Carts

And many more…

Merchant Basics How ecommerce businesses collect money

Ecommerce Merchant Basics

• Amazon provides the merchant services for sellers (pro) • All payments managed by Amazon (with lots and lots of fees)

• Main payment methods • Direct merchant relationship (usually Authorize.net) • PayPal • Shopify Payments (powered by Stripe) • Stripe • Square • Amazon Payments

• Deposits are batched daily • Mastercard, Visa, Discover in a deposit • American Express in another deposit

Ecommerce Accounting What is ecommerce accounting…..

Ecommerce Accounting Tasks

• Accounting Basics

• Recording Income

• Recording Inventory and COGS

• Reporting

Recording Income • Recommendation – Summarize as much data as possible

• Daily deposits per channel per payment type • DO NOT try to push in every transaction and apply each payment

• B2B/B2C/Direct ecommerce invoices

• Sales, Shipping income, Returns, Discounts, Sales Tax

• Full details in the accounting system, apply payments

• Managing clearing accounts & channel / merchant fees

• Recording sales for each channel by Tracking Category/Class

• Managing integrations and data pushed into accounting platform

• Watch out for too much data, wrong data, random manual journals

Inventory Value

• Inventory Count, Value for each warehouse • Amazon FBA

• In transit inventory • Track returns, demos, samples, disposals • Automated vs. manual calculation

• NOTE – Check the inventory on the last day of the month at “midnight”, most systems don’t store a historical amount

• NOTE – Make sure there is a cost for every item

Cost of Goods Sold • COGS

• Get access to every order

• Have a cost for every item

• Watch out for returns, voided orders, etc.

• Dates & statuses – Ship date (is it up to date?) • Have clients update all order statuses at the end of the month

• Recommendation • Don’t try to do COGS per order posting to the accounting system. If there are

any missing costs then COGS is wrong, if there are any issues, then COGS is wrong.

• Complete weekly or monthly

• Do trust the cloud inventory solutions (sorry)

• None of the cloud inventory solutions have a month end summary / reconciliation process for COGS. Yes, you can get month end moves/adds/changes for some systems.

Reporting

• Financials – • Profit & Loss Statement, Balance Sheet, by channel • Expenses overview • Gross/Net Margin per channel

• Cash Flow Projection

• Ecommerce analytics – cloud inventory • Profitability by SKU

• Sales velocity

• Meet and review financials with client regularly

Ecommerce Accounting Workflow

• Daily • Manage bills, PO • Address client questions • Accounting basics

• Weekly • Record Income • Projects – reconciling accounts, clearing accounts

• Monthly • Recording Inventory, COGS • Sales Tax • Month End Close Process

Ecommerce Accounting – Tips

• Do not record every transaction in the accounting platform

• Build processes for daily, weekly, monthly, quarterly tasks • Use a password vault – LastPass, etc

• DO NOT – use the clients own Amazon Admin account

• Setup 2-Factor authentication

• Make time to manage all of the data • Watch out for duplicate data

• Every order in the cloud inventory and sales tax management system

• Automate where possible but don’t trust the integrations until the provide value and efficiency

• Break the integrations and build a manual process when the integrations screw up the accounting.

Ecommerce Technology Impossible without the right cloud technology

Ecommerce Cloud Accounting Example

Cloud Inventory

Sales Tax

Sales Tax A reality and cost of doing business

Sales Tax Management

• Critical for ALL ecommerce businesses • Amazon FBA generates sales tax nexus in 20+ states

• Services • Analysis / Nexus Study (attend Diane Yetter’s session) • License registration (outsource) • Configuring sales tax collection process • Filing and remitting • Voluntary Disclosure Agreement (VDA) • Exemption certificate management • Audit support • Technology

Sales Tax Recommendation

• Every Order Imported and verified in the sales tax solution

• Track total sales tax liability on the Balance Sheet (not per state)

• Reconcile, adjust sales tax liability monthly (always an adjustment)

• Partner with a sales tax (SALT) expert for Nexus Studies and Audit Support

• Decide how to process sales tax returns

• Understand nexus

• It is better to collect too much sales tax than too little

• Note: it is almost impossible to set the sales tax collection to work properly even using a sales tax solution (Taxify, TaxJar, Avalara/Trustfile, Vertex SMB) and not all shopping carts support 3rd party connections.

Cloud Inventory

Back Office Technology – Cloud Inventory • Inventory is critical

• Managing ecommerce business

• Providing accurate financials

• Primary data flow to the accounting platform

• Requirements • Cloud based inventory

• Purchase Order functionality

• Integration into marketplace / shopping cart

• Accounting integration (or clean export)*

Cloud Inventory Options

Amazon / Multi-

channel

Manufacturing /

ERP

B2B / Wholesale Warehouse

management /

Shipping

Product

listing

International Additional

Best Practices

• Get access to all platforms, unique logins

• Use a password vault, www.lastpass.com

• Focus on a few technical solutions • Provide feedback to the vendors, push for new features

• Be consistent on the backend tools to support a range of clients.

• Clearly define the roles and responsibilities with clients • Clients manage inventory, purchase orders, enter costs, shopping cart

• Accountants manage the finances, record payments, manage GL, AP

Resources Ecommerce Accounting • https://www.xero.com/us/training/1293-accountants-bookkeepers/1494-firm-owners/3511-

xero-for-your-ecommerce-clients/ • http://www.catchingclouds.net/blog/2015/10/20/tradegecko-webinar-ecommerce-accounting-

basics Cloud Inventory • https://www.xero.com/blog/2015/05/selecting-a-cloud-inventory-solution-for-an-ecommerce-

business/ • http://www.catchingclouds.net/blog/2015/11/1/tradegecko-choosing-a-cloud-inventory-

management-solution Blogs • www.catchingclouds.net/blog/ • www.shopify.com/blog/ • www.bigcommerce.com/blog/ • www.practicalecommerce.com/blog/

Q&A Any questions……