How to build an accounting advisory workflow for e-commerce companies

Whether you’re on Amazon or a more “hip” channel such as an Instagram store, there’s no denying the explosion of e-commerce over the past decade. From dedicated platforms (Shopify and BigCommerce) to social shopping contenders (WhatsApp), there is certainly no lack of opportunities for entrepreneurs with a great product.

In 2018, online sales for U.S merchants totaled $517.36 billion, according to Internet Retailer’s 2019 industry analysis. However, while there are many opportunities for aspiring entrepreneurs in e-commerce, there is an equally important need for accountants focused on serving e-commerce companies.

Navigating e-commerce sales tax challenges

In October 2019, Massachusetts and Kansas began to require e-commerce stores to collect sales tax. This change was brought about by a 2018 U.S Supreme Court ruling, South Dakota vs. Wayfair, that provided states with the authority to requires the collection of sales tax by online stores. Even stores without a physical presence in a specific state may still be required to collect sales tax from purchases made by residents. This is reflective of the modern era, where we can make online purchases as easily as in-store purchases for household goods or new clothes.

Understanding and complying with the sales tax updates has proved challenging for smaller online retailers without the financial clout of Amazon or Apple. While some software solutions provide automated tax calculations, these pieces of software can’t provide valuable advice for nuanced situations, such as a dedicated niche accountant. In my home state of California, any company selling more than $100,000 worth of goods to Californians must comply with our state’s use tax. In these tricky situations, smaller companies would definitely appreciate the expert support of a bookkeeper or accountant.

Proper revenue recognition for subscription companies

Accounting for subscriptions has also proved challenging for some retailers because of the intricacies involved in recognizing subscription revenue. Although a customer might pay a subscription fee on the first day, companies should initially treat it as deferred revenue and recognize it throughout the service delivery period.

Understanding the principles of good accounting and their application to e-commerce is how accountants can stand out from accounting and bookkeeping software. Proper adherence to GAAP standards isn’t just for publicly traded companies – it’s critical for any company interested in maintaining an accurate overview of its financial health. It’s also an essential part of cash flow management, another top concern for retailers.

Keeping business and personal activities separate

Opportunistic entrepreneurs may be especially prone to mixing personal and business expenses, especially in the early days of their business. Helping them set up a separate legal entity and developing a good system of internal controls will be invaluable to them. Streamlining receipt and expense tracking with automated software, and using a dedicated business checking account, are all basic, yet essential steps that you, as an advisor, could help them make, whether they are a new or established business.

Becoming the firm of choice for e-commerce clients

Once companies achieve between $20,000 and $50,000 in monthly sales revenue, they require the services of an accountant. Whether it’s counteracting the Amazon behemoth with a strategic sales plan or planning logistics, you can act as a business advisor by making sure you, or your firm, stand out as the clear choice for online retailers.

Be sure to display your accounting qualifications on your website and other marketing materials. If you’re a ProAdvisor® or part of any professional association, talk to clients about your professional knowledge. It’s also essential to demonstrate your expertise within the world of e-commerce, and you may want to consider offering retailer-specific service bundles to improve your chances of winning their trust.

If you’re just getting started, offering discounted rates to potential e-commerce clients can help prove your expertise and build a portfolio of great e-commerce clients. Of course, displaying testimonials from non-retailer clients will also help retail clients understand your quality of service as well.

Tailoring your services to the world of e-commerce

There are many opportunities available within e-commerce for firms interested in this niche. For tax professionals, personal and business tax filings require expertise and guidance to avoid costly mistakes. Bookkeeping firms can help smaller companies adapt to the changing tax regulations, and accountants can provide strategic direction during high-stakes moments and critical decisions. The bottom line is that online companies are here to stay, and any steps you take to serve them will most likely be to your advantage.

Editor’s note: This article was originally published on the Firm of the Future.

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