Tag: e-commerce

E-commerce accounting: Keep your finances accurate as your online sales grow

The money that comes into your business bank account from your platform does NOT represent the full value of your sales.

E-commerce in the UK has never been stronger. From independent Shopify stores to Amazon sellers and direct-to-consumer brands, more businesses than ever are selling online. But as sales accelerate, so does the complexity of the numbers behind them.

If your accounting doesn’t keep up with your e-commerce activity, your data quickly becomes unreliable — and that can lead to cash flow shocks, VAT errors, and poor decisions.

We take a look at the most common e-commerce accounting problems UK businesses face — and how to fix them before they hold you back.

Automate – but walk before you run

The one thing you can be certain of is that the money that comes into your business bank account from your platform does NOT represent the full value of your sales.

You need to consider VAT, platform fees and any delay in the platform paying out. There might be foreign currencies to deal with as well.

So, don’t base your bookkeeping on the value of the payout, you have to dig deeper.

Download transaction reports from your platform for a period and work out:

  • the gross value of sales
  • how much of that total is VAT
  • how much the platform is charging you (these are expenses, NOT negative sales)
  • anything else that’s being deducted
  • how much you can expect to receive in the bank (and when)

Use this data to do the correct accounting for your sales. In an ideal world, the amount you can expect to receive in the bank will be the amount that’s paid in from the platform.

Check you’ve done it correctly and repeat the process for several more periods so you know what the right answer looks like in your accounting software.

And only then, and only if it is a better option, should you look to automate the accounting process.

Integration software, such as A2X, is worth looking at and there are others out there.

💡 Pro tip: Don’t import every individual transaction into your accounts. Post summarised data for a day, week etc. and drill into your platform to see individual transactions.

VAT – it might be complex but don’t ignore VAT

It’s great that you can sell to anyone in the world but the tax authorities around the world can see what you’re up to and may want their piece of the pie, usually as a sales tax such as VAT.

VAT starts to get complicated because of rules related to:

  • where are your customers based
  • whether your sales are business to business (B2B) or business to consumer (B2C)
  • whether you’re selling products, services or digital outputs

Get on top of the VAT rules that apply as soon as you can and bring in help where you need to.

⚠️ Don’t forget: the taxman can see what you’re up to (might even be a customer!)

Are you selling online at a profit?

For every sale there’s a cost of sale (as Isaac Newton almost once said).

If you sell a football online then you have the costs of:

  • the football
  • packaging
  • shipping
  • export duties if the customer is overseas
  • platform fees and commissions
  • advertising & marketing

Identify and take account of these costs as soon as you can and make sure you’re actually making a profit.

As usual, all roads lead back to good bookkeeping and a finance team that fully understands your business.

Revenue growth can look fantastic — but it means little if you don’t know which products are profitable.

It’s all too easy to lose visibility of cost of goods sold (COGS) once fees, shipping, and advertising spend are factored in. Make sure your e-commerce accounting includes all the related costs and is complete

➡️ The role of the Gross Profit Officer

Cashflow

Every business should monitor its cashflow and an e-commerce business is no different. Three of the biggest headaches are:

  • Delayed pay-outs from the platforms
  • Funding the purchase of stock for resale
  • Setting aside money to pay the VAT

Set up and run a simple cashflow model and consider opening a second bank account to put money aside for tax and future stock purchases.

➡️ Why two bank accounts are better than one

Reports, analysis and insight

You shouldn’t be short of information from your e-commerce platforms and, if you have the bookkeeping working well, you will have additional financial information from your accounting software.

Make sure the two sets of data are consistent with each other, as this is a good sanity check for your e-commerce accounting.

And make sure you can see clearly where you’re making a profit, where you’re not and take action to improve the profit margins of each item you’re selling online.

The reports from your e-commerce platform might not be everything you desire as they have to cater for users across the world and can be a bit generic. You might have discovered this at the bookkeeping stage!

Equally, the reports you get from your bookkeeping software will only be as good as your bookkeeping and how thoroughly you’ve set up the chart of accounts in your software.

➡️ Build a useful and future-proof chart of accounts in Xero

E-commerce accounting – DIY, outsource or hybrid?

Business owners often try to manage it themselves, resulting in late reconciliations, inaccurate VAT returns, and reactive decision-making. Often a false and frustrating economy.

Get help early on from a bookkeeper or accountant who understands e-commerce systems and workflows.

Once the correct accounting framework is in place and you’re getting meaningful information about sales, profits and cashflows you have some choices around:

  • automation and apps
  • financial controls such as bank reconciliations and gross profit reviews
  • outsourcing, bringing the bookkeeping in-house or sharing the work

E-commerce accounting should become a routine process that works well and provides the financial information you need to grow your business and your profits.

➡️ Bookkeeping for business

The bottom line

Selling online to anyone in the world is a golden opportunity that’s available to any business.

But remember:

  • the platforms will take a share of the spoils
  • it may take some time before you receive your money
  • VAT and similar sales taxes are a big part of the e-commerce landscape
  • all sales have costs of sales

You’ll need a financial platform to sit beside your online platform.

We can help you with that.

At Blue Dot Consulting we help UK e-commerce businesses achieve up-to-date, complete and accurate bookkeeping, allied with robust financial reports and keep a steady eye on cashflow.

Get in touch to discuss how we can make your e-commerce accounting accurate, efficient and useful.

☎️ call Michael Austin on 020 7125 0270

📧 info@bluedotconsulting.co.uk

Related articles:

This is bookkeeping in the 21st century

Profitability and cashflow

Know your numbers and don’t get lost in the fog

Blue Dot Consulting provides accounting, e-commerce and business advisory services to clients across Central London, West London and South West London, with particular focus on Fulham, Hammersmith, Richmond, Putney, Wandsworth, Kensington and Chelsea. We help local business owners make better financial decisions and plan confidently for the future.

© Blue Dot Consulting Limited, Chartered Accountants, Bedford House, Fulham Green, London, SW6 3JW

This is bookkeeping in the 21st century

One thing you shouldn’t do at this stage is think:

“I know! let’s connect the online platform app to the cloud accounting software.”

A colleague commented “this is bookkeeping in the 21st century” and here’s why she said it.

We have a client that sells household goods, mainly online, and we noticed that money was coming in from a new online sales platform, which happens to be based in France.

We see this from time to time – businesses find new routes to market and new platforms to sell from.

And we need to understand what’s going on. Not least because you can be pretty sure that the money we see coming in to the bank does NOT constitute just one complete sale.

One thing you shouldn’t do at this stage is think:

“I know! let’s connect the online platform app to the cloud accounting software.”

The way through the woods

Here are some of the common steps to negotiate before you can do any bookkeeping.

Pro tip: make copious notes as you go

Step 1 – get access to the online platform and look around for reports which will tell you all you need to know about the sales made

Step 2 – download the report(s) you need

Step 3 – delete a lot of columns you won’t need

Step 4 – figure out the currency of each transaction and the GBP equivalent

Step 5 – figure out if the platform has deducted its transaction charges from the value of each sale

Step 6 – figure out if the platform retains any money on some or all transactions for a period before paying it over

Step 7 – determine which sales transactions comprise each pay-out you can see in the bank account

Step 8 – do the correct accounting. This will most likely be a sales invoice or sales receipt, with the correct VAT treatment and with a deduction for transaction costs.

Step 9 – match the money in the bank feed to sales invoice or receipt

(There may be more or fewer steps depending on the exact circumstances.)

Get the transactions correct manually before you automate anything

It might be that the platform has an app that talks to the accounting software and it does everything perfectly.

Reader, that’s unlikely.

You may well be able to automate the work you do when you download the reports you need – take a look at Microsoft PowerQuery and / or build a nifty workbook that has formulas and pivot tables that take you from what you start with to what you need for your bookkeeping.

Having created the exact output you need in the workbook you may be able to import it as a CSV or PDF into your accounting software

This is bookkeeping in the 21st century

Why the comment?

We live in an age of technological change where new products, platforms and services spring up all the time. Businesses will innovate, try new things, do things differently.

This will give rise to new transactions, coming from different sources, often with data that isn’t oven-ready for bookkeeping.

So bookkeepers, accountants, finance teams – they all need to be alive to new transaction streams. And when they come across them they need to:

  • Go to the source of the transactions
  • Collate and organise the data required for the correct accounting
  • Do the accounting
  • Make the process more efficient using appropriate data-manipulation and automation tools

A final word for CEOs

You shouldn’t let your business be held back by bookkeeping and accounting that can’t keep pace and this blog is all about helping finance teams to keep up.

Bookkeeping in the 21st century certainly requires a greater level of agility than was required in the past.

But – don’t be seduced by every shiny, new, bells & whistles bit of technology. Not everything is useful or necessary and you don’t want your business to collapse under the weight of all the apps that are hanging off it.

Can we help you find the right balance?

We meet a lot of CEOs who are frustrated by the lack of useful financial information flowing through their organisations and, consequently, we do a lot of work helping organisations with finance transformation.

Can we help you?

Let’s have a free-of-charge chat about your business – call Michael Austin on 020 7125 0270 or email info@bluedotconsulting.co.uk

Michael

Related links:

Finance transformation

Technology is the servant not the master

You can’t run a £1m business and only have your bookkeeping updated every three months!

© Blue Dot Consulting Limited

Chartered Accountants – Bedford House, Fulham Green, London, SW6 3JW

E-commerce bookkeeping

Start the bookkeeping manually and make sure your accounting software is configured to produce reports that accurately measure your business activities.

E-commerce is a great enabler for businesses of all shapes and sizes the world over, a real and successful engine for economic growth. Of course all of the e-commerce transactions need to be accounted for, which means e-commerce bookkeeping is a necessary skill in the 21st century.

E-commerce is a broad church

Here are some examples of e-commerce that we see every day:

  • selling products on Amazon, being paid by Amazon
  • setting up an e-commerce website on Shopify and being paid by Shopify
  • marketing an event on Eventbrite and being paid via a combination of Eventbrite, Stripe, PayPal or directly by attendees
  • selling digital downloads or subscriptions to watch videos on your website and being paid via Stripe or PayPal
  • selling your own products on your own website and being paid via a merchant service such as Sagepay or Adyen

These are just some examples of e-commerce activities and transactions. Not only are there many more but new channels and platforms are appearing all the time.

And all these businesses have to get their heads around e-commerce bookkeeping.

E-commerce bookkeeping – map your transactions

This is the same for all businesses and organisations, whether they’re online or offline – you start by mapping your transactions.

Let’s say that Blue Dot Consulting (BDC) has an e-commerce bookkeeping webinar and let’s map what happens.

  1. BDC creates an Eventbrite account
  2. We promote our e-commerce bookkeeping webinar and point attendees to Eventbrite to sign up and pay
  3. Attendees sign up and pay by card
  4. We run the event (and receive many five-star reviews)
  5. BDC receives a sum of money from Eventbrite

Points to note / questions to ask:

  • The sum of money received will be less than the total paid by the attendees – because Eventbrite will deduct their fees before paying BDC
  • BDC is VAT registered – it has made sales which attract VAT in the UK but what if some of the attendees were from outside the UK?
  • Did some people attend because it was part of their work and did some attend in a personal capacity?
  • Does BDC have to create and send invoices to the attendees?
  • Is there VAT to reclaim on the Eventbrite fee?
  • How long does BDC have to wait to receive its money?
  • The receipt of one sum of money is not sufficient information for the bookkeeping. So, what reports are available in Eventbrite that show the transactions related to the event?

These are just the points that arise from my simple example – in your business you may have several more issues to think about, such as categorising the different products or services you’re selling.

Map your transactions – go to where the data is

The place to go is where the transactional data is being captured.

This could be your website, Shopify, Stripe, PayPal or somewhere else entirely depending on your e-commerce set-up.

But the data is available somewhere, often in a “Reports” section, and you need to download it.

Then you need to understand it and figure out how to use the data for your bookkeeping.

Do the bookkeeping manually to start with

Once you understand the transactional data it’s pretty simple to figure out the correct bookkeeping, making sure you get the VAT / sales tax element correct for the different customer groups, locations, products and services you’re selling.

Start the bookkeeping manually and make sure your accounting software is configured to produce reports that accurately measure your business activities.

You can use the reports to check your bookkeeping and to share across your business so everyone who needs to can track sales performance.

Apps and apprehension

There are many apps that connect e-commerce platforms to accounting software. And when they’re working successfully they will save a huge amount of time and improve the accuracy of your bookkeeping.

They’re also essential for when your business scales up. As your business grows you can’t afford for the e-commerce bookkeeping to be left behind.

But for every app there is an error waiting to happen if you’re not careful. And most cloud accounting software doesn’t allow you to take and restore a back-up so be very careful when you start to import large volumes of transactions.

That said, get the apps to do the heavy lifting once you know they will do it correctly.

How can Blue Dot Consulting help you navigate e-commerce bookkeeping?

E-commerce is here to stay, it’s constantly evolving and e-commerce bookkeeping needs to keep pace.

It’s not as simple as it can be made to look in the swish and fancy videos the software people point you towards. But once you get the building blocks in place and have a thorough understanding of your transaction data then you can progress to a joined-up world in which data flows from one app to another, morphing into useful financial information along the way.

We have a great deal of experience working with e-commerce businesses like yours, making sense of the sales transactions, accounting for them and generating useful financial information.

We can help you!

Let’s have a free-of-charge chat about your business – call Michael Austin on 020 7125 0270 or email info@bluedotconsulting.co.uk

Michael

Related links:

This is bookkeeping in the 21st century

Bookkeeping for your business

Spreadsheets in accounting – use fewer of them but learn how to build them better

© Blue Dot Consulting Limited

Chartered Accountants – Bedford House, Fulham Green, London, SW6 3JW