Restrictions due to COVID-19 and the rise of Online Stores has forced many small business owners to close their brick and mortar stores and sell online.
Restrictions due to COVID-19 Virus and the rise of e-commerce has forced many small business owners to close their brick and mortar stores and sell online. If you know what it takes for an online store to be profitable, you can keep existing clients and attract new ones.
As accountants, we have assisted many client transitions to an Online E-Commerce store. We will share with you our seven-step approach to help you transition from a physical store to a profitable online store.
Step #1: Select an e-commerce platform that fits the client’s needs and budget
Choosing an e-commerce platform is a long-term commitment to your client. According to Google, the most important factors to consider when choosing a platform include:
- Security features
- Product management system
- Order management system
- Return management system
- Multi-channel integration
The two main types of platforms are SaaS-based eCommerce platforms and open-source eCommerce platforms. SaaS-based eCommerce platforms, such as Shopify, BigCommerce, and Squarespace, are popular among new eCommerce merchants as they can be set up in a few hours.
Open-source eCommerce platforms, such as PrestaShop, Magento, and WooCommerce, require development and are a good option for business owners who are willing to invest more work upfront to customize their online stores. As your business grows, you can customize your online store at the same time.
According to the E-commerce Guide, there are additional hidden costs that need to be considered when deciding what’s the best fit for your client’s budget: the cost of the platform, development costs, maintenance fees, and transaction fees, just to name a few.
Step #2: Hire an Accountant and Get the Books Setup and Linked
Our accounting firm primarily uses QuickBooks which offers more financial reports, support for sales orders, and is a better inventory management solution. QuickBooks Online is cloud-based, integrates with hundreds of apps, and you will be able to log in from anywhere and run their business on-the-go from any device.
If you value mobility, QuickBooks Online is a better choice. Intuit will perform all the updates automatically for QuickBooks Online users. If mobility is not a priority, then we suggest QuickBooks Desktop as a better fit. QuickBooks Desktop version is considered more secure because there is no direct access to the internet.
Step #3: Mark Up Pricing to Cover Shipping and Merchant Fees for Each Selling Channel
Not only do e-commerce merchants have to pay a variety of fees, but they also need to pay different fees on different channels, such as processing fees, hosting fees, inventory fees, and listing fees. When pricing their products, your clients will need to mark up their product and shipping to include all their costs. Your accountant will be a huge help here.
Step #4: Match Product Names in Online Store and QuickBooks
A common reason that businesses struggle with bookkeeping is their products in QuickBooks and their website fail to match, making integration almost impossible. Your product SKU should match your QuickBooks item name, so inventory can properly sync between the two systems.
Step #5: Map Tax Codes Correctly
Sales tax is levied at different rates in different states since some counties and cities add tax. If a merchant is audited and if tax is incorrect, then the seller could be heavy fines. By integrating with tools such as Avalara, your clients can automate tax compliance and avoid getting audited. Get your accountant involved, this is very complicated and can result in thousands of dollars in penalties and fines or sales tax audits.
Step #6: Set up Deposit Matching
Payment processors charge processing fees that need to be reconciled when matching deposits to sales. If the deposits are unmatched, then the books cannot be reconciled, and the business will pay taxes on merchant fees. To avoid paying taxes on expenses, your clients need an automated system to map fees to QuickBooks and match deposits.
Step #7: Integrate Online Store with QuickBooks to Track Inventory and Sales
Mismanaging online inventory can lead to overselling and refunds. When inventory is not up to date in QuickBooks, their COGS is incorrect. As a significant portion of capital is tied up inventory, online business owners must manage their inventories. By having a system that automatically syncs their online sales and inventory with QuickBooks, your clients can make informed decisions and run profitable businesses.
With the right infrastructure for an online store in place, you can:
- Ship products on time, receive good customer reviews and increase seller ratings.
- Track cash flow and make informed business decisions about staffing, marketing, and partnerships.
- Comply with taxes and keep their books up to date.
- Use automation to save time and labor costs, and finally
- Expand to multiple selling channels and increase profitability.
The more systems and automation you incorporate into their business workflow, the easier it will be to transition to the online selling space, stay up to date with bookkeeping, and generate new revenue streams.