Managing an online store is not only about order processing and customer service. An ecommerce business owner needs to reconcile transactions on various platforms, deduct marketplaces’ commissions, monitor inventory levels, handle returns and take into account any sales tax that may be imposed. With growing revenues, these tasks become even more intricate, thus proper financial management becomes vital. To do this, a good ecommerce accountant will come in handy for the business owner.
In this blog, we will cover how to find a qualified ecommerce accountant, what criteria to use in search and what qualities and skills to look for in a candidate. Also, we will discuss how to compare in-house and outsourced solutions and what to ask when hiring an accountant and what financial reporting capabilities to consider.
Why Your Business Needs an Experienced Ecommerce Accountant
Accounting for ecommerce is an accounting procedure which is not similar to most other companies. Conducting business on various online sites can make it difficult to keep track of transactions, and there are costs associated with things like inventory and taxes.
Managing Multichannel Sales and Inventory
The online retailer may sell the products on Shopify, Amazon, Walmart Marketplace, and on the company’s website. The payment cycle, fees, refund policy, and report format will be different on each channel. An accountant who is experienced with ecommerce transactions can reconcile the payment settlements from the marketplaces with actual sales, costs, and deposits.
Accounting for the inventory is equally important since just because the purchases were paid, does not mean that they are expensed. Most companies have to properly calculate the value of their inventory and the cost of goods sold.
Handling Sales Tax and Regulatory Compliance
Sales tax liabilities might apply to e-commerce companies where there is a physical presence or where economic nexus criteria are fulfilled. The economic nexus criteria and how they are calculated differ from state to state. Some states also require marketplace facilitators to be responsible for collecting sales tax from third-party sellers.
An accounting professional who specializes in ecommerce tax can help establish whether there is a need to register in any state, determine the difference between marketplace sales and sales made directly from the company’s website, and keep all the necessary documentation. For instance, in Iowa, some sellers need to include marketplace sales when calculating economic nexus even though the marketplace collects the tax.
Providing Financial Reports and Growth Insights
Financial statements that give correct information can be used by ecommerce owners to ascertain whether their business is making sustainable profits. Income statement, balance sheet, cash flow statement and channel profit analysis could all be made by an accountant. The statements could help to determine how advertising costs, fulfillment costs, payment costs, and returns impact business performance.
Financial planning becomes important when businesses diversify or introduce new products into the market. An accountant can assist with budget preparation, purchasing of stock, cash flow predictions, and pricing. Rather than base all decisions on the numbers obtained from sales only, owners can analyze contribution margins and operating costs.
How to Evaluate an Ecommerce Accountant Before Hiring
Selecting an accountant involves considering a lot more than just his/her qualification in the field of accounting. There are certain other criteria that must be considered by business owners when selecting an accountant for their business.
Check Ecommerce Experience and Professional Credentials
Inquire from any potential accountants regarding their familiarity with firms that are similarly sized and operating in a similar manner. An individual with a history working with Amazon FBA, Shopify, subscription commerce or foreign operations may have greater knowledge of some financial problems that may be less common for a general accountant. Ask for examples of reconciling marketplace accounting, dealing with inventory, handling returns, and sales tax filing.
Credentials are also important when a firm has certain requirements for tax advice or representation. Not all accountants are CPA’s and not all ecommerce bookkeeping tasks require the same. If you do hire an individual claiming to be a CPA, check up on the credentials at the appropriate state board or at CPAverify. According to NASBA, “CPAverify is able to utilize the official licensing data made available through participation of the states.”
Assess Accounting Software and Automation Skills
The ecommerce accountant needs to have knowledge of accounting and sales software used by your business. Some of the software includes QuickBooks Online, Xero, Shopify, Amazon, payment processors, inventory management software, and sales tax software. The accountant needs to know the flow of transactions between such tools.
While automation minimizes data entry manually, integration still needs supervision. This is because importing individual transactions on marketplaces without an effective reconciliation method may lead to double revenue or wrong classification of fees. You need to ask about how the prospective accountants validate imported transactions and reconcile the payments.
Evaluate Communication and Financial Advisory Services
An effective accounting relationship requires the setting of roles and good communication lines. Inquire about how often the accountant will reconcile the accounts, provide financial statements, and discuss the outcomes and answer any inquiries. Set the role for dealing with urgent tax letters, missing documentation, inventory variances, and year-end adjustments.
Also, consider whether the service will be limited to only accounting and compliance or will involve financial advice. While some companies may just require the provision of monthly statements and tax filing, other firms need cash flow projections, budgeting, inventory management, or even virtual CFO.
In-House vs. Outsourced Ecommerce Accounting: Making the Right Choice
It is for business owners to determine whether to have an accountant in-house, to use an outsourced accounting service, or to use both together. The best choice will depend on the number of transactions, the complexities of reporting, and the level of integration needed.
Comparing In-House and Outsourced Accounting
The in-house accounting position is within the organization and can operate close with the operation team, inventory team, purchase team, and management team. This option could apply to organizations with high transaction numbers or high financial activities on a daily basis. But the total cost of employing an accountant involves salary, benefits, training, software, and management.
Outsourcing the accounting position allows a firm to utilize the expertise of the external individuals without employing a permanent individual. Outsourcing could include the provision of monthly bookkeeping, reconciliations, financial reporting, taxation, payroll, and financial planning among others. It is essential for organizations to understand the amount of services provided and not just the cost.
|
Consideration |
In-house accountant |
Outsourced accounting |
|
Employment |
Direct employee |
External provider |
|
Cost structure |
Salary and employment expenses |
Contract or service fees |
|
Availability |
Based on employment arrangement |
Based on service agreement |
|
Scalability |
Requires hiring or training |
Depends on provider capacity |
|
Specialized expertise |
Depends on employee experience |
Depends on assigned professionals |
|
Management |
Supervised internally |
Managed through agreed deliverables |
Understand Pricing and Service Agreements
Accounting fees depend on the transaction volumes, sales channels, intricacies of inventory management, tax districts, accounting periods, and advisory services needed. An e-commerce store with one online store and simple accounting is expected to have an entirely different set of services compared to a business that operates on multiple channels, sells internationally, and maintains multiple warehouses.
Get a proposal that states the services offered, reporting dates, software management duties, extra charges, and how historical accounting errors will be rectified. Inquire if tax filing, sales tax, payroll, inventory management, and year-end accounting services are part of the package or charged separately. This makes it easy to compare various firms' rates.
Ask the Right Questions Before Making a Decision
A structured interview may be helpful in determining whether an accountant knows your business and is able to provide the necessary services. Below are some of the questions to ask before embarking on the engagement:
- Which ecommerce platforms and accounting applications have you worked with?
- How do you reconcile marketplace settlements, payment fees, refunds, and inventory?
- What experience do you have with multistate sales tax and marketplace facilitator rules?
- How frequently will you provide financial reports, and who will review them with me?
- How do you protect financial data, control software access, and manage confidential records?
- Which services are included in your fees, and what would cost extra?
Make sure to ask for appropriate references from the client and to examine the agreement carefully. Where the accountant will have access to payment systems, banking details, or accounting programs, make sure that there is an appropriate system in place for granting approvals for transactions.
Finding the correct ecommerce accountant will assist your online business in handling complex bookkeeping issues, reconciling multiple channel sales, monitoring costs of inventory, and fulfilling tax liabilities where necessary. Experience in the industry, software skills, qualifications, communication abilities, and the ability to provide financial reports are key factors when choosing between possible accountants.
It is important to determine the duties related to accounting that should be assigned in your company before the selection process and then select a suitable accountant based on the specific requirements. It can be an in-house staff member or a third-party accounting service.
The Fino Partners provides outsourced bookkeeping, accounting, financial reporting, tax preparation, payroll, and virtual CFO services for U.S. businesses and accounting firms. Our accounting professionals can help ecommerce businesses organize financial records, streamline recurring accounting processes, and obtain timely financial information. Contact The Fino Partners to discuss your ecommerce accounting requirements.
