How to save on your eCommerce accounting:
The factors that affect how your eCommerce Accounting fees:
- The number of bank accounts your eCommerce Business has
- The number of FinTech accounts you have
- The number of ecom sales channels you have
- Mixing personal and business transactions
- Manual vs automated record keeping and e-commerce bookkeeping
- Once-off vs ongoing accounting and bookkeeping costs
- Regular financial reviews of your books
- The complexity of your e-commerce business
The Number of Bank Accounts affect bookkeeping costs
Each bank account an e-com business has, adds to the complexity of bookkeeping. More accounts mean more statements to reconcile and more transactions to track, thereby increasing the workload for the accountants, which in turn increases the costs.
Where possible consolidate your accounts. Less bank accounts mean less bookkeeping fees. Here are a couple of specific examples:
- Limit the number of accounts you have that receive money:
Ideally you want all the payments/ settlements from Amazon, Shopify, Ebay, Walmart and WooCommerce etc to be deposited in the same account. This reduces the need to transfer money between accounts, which reduces the number of transactions.
- Reduce the number of credit cards you have:
Credit cards are often an easy source of funds to start an eCommerce business. This is especially true in the beginning of the business where banks are happy to provide you with credit in your personal capacity but not in the name of your business. The reality though is that having 10 credit cards is not only extremely expensive when it comes back to bank charges and interest payments, but with each one you can have an increase in your monthly ecommerce accounting bill. This is typically between $20 – $50 depending on the ecommerce bookkeeper you use. Once your business reaches critical mass, reducing the number of credit cards you have by consolidating the dept into a business loan can significantly reduce your costs both from an accounting as well as a debt servicing point of view.
- Maximize your credit card cashbacks
Not all credit cards are created equal. Some offer great cashback benefits which can be helpful. Ecommerce businesses spend allot of money on advertising, apps and other online services. By getting a credit card with really good cashback rewards and putting through as many expenses as possible through the card will get more cash back. So instead of having many credit cards for transactions rather put through as many transactions as possible through only one credit card account.
The Number of Fintech Accounts affect your fees
Fintech solutions, like PayPal, Stripe, or Square, offer streamlined online payment processing, financial management, and other services that are essential for e-commerce businesses. However, utilizing multiple fintech accounts can inadvertently lead to increased costs and complexity, particularly in terms of eCommerce accounting fees.
One significant challenge arises from the multi-currency capabilities these fintech solutions often provide. While handling multiple currencies is beneficial for reaching a global market, it also complicates financial management. Each currency transaction might involve conversion fees, fluctuating exchange rates, and additional accounting complexities. This means that for each transaction in a different currency, there could be additional costs associated with converting and reconciling these amounts for accounting purposes.
Furthermore, managing multiple accounts necessitates more comprehensive accounting efforts to track and reconcile transactions across different platforms and currencies, leading to higher accounting fees. This complexity not only increases the direct costs related to transaction processing but also demands more time and resources for financial oversight and reconciliation, adding to the overall expenses of running an e-commerce business.
- Reduce the number of FinTech Accounts:
We have seen sellers that have multiple FinTech accounts. They receive payments in Paypal, Stripe, Square and more and then raise their concerns when the accountant must increase his monthly bookkeeping fees. The reality is that each fintech account operates like a bank account. Where possible reduce the number of accounts you have to reduce your accounting fees.
- Reduce the number of foreign currencies you keep:
Where possible try to limit or reduce the number of foreign currencies you make use of. Many sellers do not realize it but each currency you receive payment in creates a “bank account” for that currency with your FinTech partner (eg Paypal). So if you receive payment in 5 currencies it means you effectively have 5 banks accounts.Try to limit the currencies as much as possible and only keep the currency that you would actually use for making payments as well. For example if you have a supplier that you use in Mexio, it makes sense to keep Mexican Pesos as a currency, but if not, try to avoid receiving payments in other foreign currencies.
The Number of Sales Channels impact ecom accounting fees
It often happens that a client might do 50% of their sales on one sales channel (for example Amazon), 30% on a secondary channel (for example Shopify) and 20% spread between several other smaller sales channels. While multiple sales channels can increase revenue, they also add to the accounting burden, especially if they don’t have a sufficient volume of transactions to justify the cost.
If you have smaller sales channels that you have sufficiently tested, and they just don’t bring in enough revenue to justify the cost of having them then it might be best to cut that sales channel. What is the point of having a sales channel that produces a $100 in sales every month, but costs you R105 in additional apps and accounting fees? Each sales channel should be worth the cost of managing it.
Mixing Personal & Business Transactions will affect how much your accountant charges you
Mixing personal and business transactions complicates accounting and increases costs. When personal and business expenses are mixed, it becomes challenging to distinguish between the two. This lack of clarity can lead to inaccuracies in financial records, making it difficult to understand the true financial health of the business. Furthermore, separating personal and business transactions after they have been mixed requires additional time and effort. This process often involves sifting through bank statements and receipts to categorize each transaction correctly, which can be time-consuming and increase your ecommerce bookkeeping fees.
Keeping these transactions separate is essential for clear, efficient financial tracking and simpler, more cost-effective ecom accounting. When you start your business you might be forced to open a personal account that you use for business purposes, that is ok, so long as you don’t mix business and personal transactions.
It is better to have a dedicated “personal account” that you use for business purposes only, than to have several accounts where you mix and match personal and business transactions. The longer your ecommerce accountant has to take to unravel personal and business transactions the more it will cost you.
Technology can reduce your bookkeeping fees
Ever heard the term shoe box accounting? “Shoebox accounting” refers to a somewhat disorganized method of managing financial records, where receipts, invoices, and other financial documents are haphazardly stored in a box (often literally a shoebox) or in an unsorted pile. Most ecommerce sellers do not keep their receipts in a shoe box these days, however the principle is that the more disorganized your financial records are the longer it will take to unravel them, which will increase the cost.
Leveraging technology is crucial in modern e-commerce accounting. Accounting software that integrates seamlessly with your e-commerce platforms can automate many aspects of bookkeeping, reducing the time and effort required for manual data entry. This not only improves accuracy but also translates into lower accounting fees. At CronosNow we love using apps like A2X Accounting and Dext Prepare, which reduces errors, improves performance and automates allot of the accounting.
Ongoing Accounting is Cheaper Than Catchup Accounting
It happens every now and then that an ecommerce seller reaches out to us and asks for a quote on accounting. When asked if their financial records are up to date, the response is “I have not done any accounting for several years now. I got a notice from the IRS the other day, can you help me sort it out”. The brutal truth is that once-off catchup accounting takes allot of effort and can be very costly since it can take several weeks to understand and unravel everyting.
Frequent reconciliation of accounts helps maintain up-to-date and accurate financial records. This proactive approach is far more cost-effective than the intensive work required to catch up on weeks or months of unreconciled transactions. Regular reconciliation streamlines month-end accounting processes, saving time and money, but more importantly it provides you with accurate data that you can use to financial decisions about your business.
Regular financial reviews can help you be more profitable
Many sellers don’t succeed, not because they don’t make enough sales, but because they don’t make enough profit. Since they don’t regularly review their business’ financials they don’t know where they are losing money since they never really take the time to understand their business.
While hiring an accountant might seem like an added expense, engaging one who specializes in e-commerce can be a cost-saving move in the long run. Their expertise in navigating the unique challenges of e-commerce accounting leads to more efficient management of your financial records, potentially reducing overall accounting costs.
Furthermore, conducting regular financial reviews is an effective strategy for identifying inefficiencies and potential cost-saving opportunities in your accounting processes. These reviews ensure that your financial practices evolve with your business needs, helping to maintain a cost-effective accounting system.
The more complex your operations are the more you will pay for accounting.
The problem:mConsider the following two sellers:
Seller no 1 – Bob:
He only has one product on Amazon and has 10 000 orders per month. Bob only sells in the USA and he has one business checking account, one credit card and a loan for $100 000 to buy stock.
Seller no 2 – Mary:
The second seller, Mary, sells on Amazon, Ebay, Walmart, Shopify, Etsy as well as Faire.com. Mary does 500 transactions per month but has 50 different product types that she is selling.
Who’s ecommerce accounting will cost more?
- Bob’s accounting costs (seller 1) will be significantly less than Mary’s since it is less complex.
- Furthermore since there is a large volume of similar transactions we can automate the accounting using apps like A2X Accounting. In Mary’s case (seller 2) although she does far less transactions than Bob she has 50 times more SKU’s. This means that her ecommerce accountant will have to do a lot more work to calculate the value of inventory.
- Furthermore, Mary will have to pay significantly more for apps than Bob to get the sales data out of all her sales channels.
- Focus on the most profitable products: By focusing on the most profitable products Mary has an opportunity to reduce her number of SKU’s. This means that she will be able to purchase products at greater volume with a greater discount. Typically, she should also be able to save more on inbound shipping as well since the cost per unit decreases on sea freight dramatically when you order in bulk. This is often easier said than done, especially when starting a ecom business since you don’t have enough data yet to know which will be your best sellers, however it is something you should aim to achieve as soon as possible.
- Only keep profitable sales channels: By reducing the number of sales channels to the most profitable, Mary should be able to focus her marketing budget more wisely. This in turn should allow her the ability to increase the profitability of that channel since she will achieve critical mass sooner.
Effective financial management is critical for e-commerce success. By understanding the factors that impact accounting costs and embracing strategies such as technology adoption, regular reconciliation, hiring specialized accountants, and conducting financial reviews, e-commerce sellers can achieve substantial savings in bookkeeping and accounting fees. These savings can then be redirected towards growth and expansion initiatives, fueling the continued success of the business.