Sales Tax Services for E-commerce Clients – Part 2by
If you have e-commerce or retail clients in some capacity, you know how complex sales tax compliance has become.
As part of a three-part series, e-commerce expert Patti Scharf, CPA will address the growing concerns of accountants who have this client base, by offering tips on compliance and growth from start-ups to larger businesses. The first article in this series addresses the needs of small businesses.
Let’s face it: business owners would rather spend time in the business than on the business, but may lack the basic knowledge of accounting, especially when it comes to sales tax reporting and compliance.
Now add e-commerce sales to the mix and suddenly you may have a prospect or client who really needs your help. How can you ensure you’re the best fit for a small business?
This article will focus on the small business with $20,000 to $50,000 per month in sales, also referred to as “stage two” in the three evolutionary stages of business. Other articles in this series focus on startups (stage one) and larger businesses (stage three).
Small Business Challenges
In stage two, clients might be making enough money now to make this a full-time endeavor. That's awesome, but it also adds some stress because they are fully invested in the success of their business. They may even have a few employees, which also adds stress because now they are responsible for other people's livelihoods.
Hearing horror stories about Amazon shutting down businesses willy nilly has scared e-commerce businesses, so they’ve expanded to selling on Shopify to develop their brand, and maybe eBay as well, so they can easily get rid of obsolete inventory.
Even though the business can see performance data for the different shopping carts, it's challenging pulling all that information together in one place to see how the business is doing overall. If the business procrastinated on its bookkeeping, it now has a month’s worth of backlog and/or cleanup to do and is starting to realize it may need real help.
In some cases, clients already have a bookkeeper, but because they are looking at the shopping cart metrics, they have a gut feel for what their numbers should be, but their books don't match that, and they don't understand why.
Cash flow is also a concern because they need sales to buy inventory to support sales to buy inventory to support sales to buy inventory ... you get it. They also need to talk to the bank about getting a loan so they don't have to worry so much about the cash flow cycle. However, to do this, they will need decent financial statements.
Developing the Solution
The client needs an accountant – and knows it needs an accountant – but is also absolutely sure it doesn’t need a full-time accountant, especially if the company has been doing the accounting. If these clients aren't ready to pay for a bookkeeper, they will likely land on a hybrid between do-it-yourself and do-it-for-you outsourced bookkeeping services.
Luckily for this type of e-commerce business, this is the space where almost all the current "e-commerce accountants" live. Accountants in this space will set up a client’s books, do a bit of training and then they let the business run the books on a daily basis, but will clean things up at the end of the month.
This type of accountant tends to be a bit more affordable because a lot of the work still falls on the client’s shoulders and/or is automated. However, the business should be careful of false automation: systems that seem to automate the work, but don't scale and actually create more problems as they grow. This is a common problem for newer e-commerce accountants who don't yet have the experience to see where their choices are leading them.
A monthly (hybrid) accountant is a decent choice for a business running on three channels or less, isn't very complex with few purchase orders, and has a low volume of transactions. However, as a business tries to grow and diversify, it will find its accounting needs to be managed on more of a daily basis.
If you want to meet the needs of this type of small but growing business, you may soon find that your accounting firm does not have the time or resources to clean things up monthly once a business starts getting too big. If you fall into this bucket, you will want to do one of three things:
- drastically increase your price,
- hand the work off to firms who are better equipped to handle the workload – again, drastically increasing the client’s price), and/or
- fire the client outright when it begins to become too much of a drain on your resources
No one knows your business like you do – and you should assess your skills and knowledge level when it comes to offering tax and accounting services to small businesses, especially those that have e-commerce concerns.