Every year, businesses in the e-commerce world, face heightened sales during the final months of the year. With holiday-related gift-giving in full swing, this is a great time for many businesses to earn a large bulk of their revenue.
Part of having a successful Q4 is planning ahead to utilize end-of-the-year accounting strategies and tactics that can help your company to have a prosperous holiday season. This post will highlight five best practices e-commerce companies can utilize to make the influx of holiday consumer purchases easier to navigate from an accounting perspective.
1. Use an Online POS
One of the most efficient ways to make sure that you are expediting your reporting and managing the flow of new business during Q4 is to make sure that you have a reliable online POS system. Having an online POS is a pragmatic way to limit manual entries. It also ensures your company has a reliable online system that integrates easily with an e-commerce accounting system. When this integration works automatically, it makes entries faster (which is especially helpful during busy shopping seasons). In addition to added efficiency, it also provides you with a crystal clear sales report that allows you to get added insights from your numbers.
2. Track Cost of Goods Sold
Many e-commerce companies don’t effectively track their costs. Understanding the cost of each product allows you to accurately understand what your profit is. One way to quickly track this (building on the last point about an online POS) is to enter the associated costs with every sale that you make. If you aren’t tracking the cost that is associated with your sales, it can be difficult to calculate accurate margins later.
Where companies quickly get derailed in holiday season accounting, is when they begin generalizing costs for their e-commerce business instead of entering in actual figures. Considering that this is a really hectic time for many e-commerce companies, if this problem goes unaddressed, it can grow into a more serious problem that companies will have to face.
3. Stay Informed on Sales Tax Requirements
It’s also important that e-commerce companies stay up-to-date on changes regarding sales tax laws for the states where they sell. According to a recent landmark US Supreme Court ruling, online retailers are now required to pay sales taxes in all 50 states. As a result of these new laws, online retailers must keep track of where they are shipping their merchandise. Doing so helps to ensure that they are calculating their sales tax correctly.
If you find your company shipping to multiple hot spots, it may be a helpful best practice to do a periodic review of the sales in each state. Especially, if you meet certain benchmarks. Due to the fluctuating laws and requirements around each county, it’s important that you confer with a tax professional in each state to accurately assess, collect, file, and pay sales taxes in every state you operate and sell. It’s important to prepare for this ahead of time, from a managerial standpoint, as you anticipate an influx of sales during the holidays.
Just remember that sales systems have to be set up properly to capture the correct sales tax rates. Even if your company is using software, that doesn’t mean that it will know the State’s local jurisdictions. Be very careful to make sure that you are accurately calculating local taxes, as the local rates for out-of-the-box software aren’t always correct.
4. Consider Shipments and Supply Chain Disruptions
With higher numbers of sales coming from online shoppers in response to COVID-19, it is a prudent business decision to keep a close eye on any potential shipping supply chain disruptions. Catching them early can help prevent your goods from getting stuck in foreign distribution channels. With enough planning and foresight, you can also make better strategic business decisions.
As consumer purchases tend to be higher by volume at the end of the year, it is a good idea to anticipate inventory needs months ahead of time. This helps to get your finished goods into the hands of eager customers, without suffering supply chain disruptions and unexpected lengthy delays, as many industries have suffered this year.
5. Know Your Break-Even Point Ahead of Time
With so much riding on uncertainty with the holiday season sales, it’s always a good idea to figure out what your break-even sales requirement is prior to Q4. Knowing your Break-Even Point helps you to understand what realistic sales goals look like, and allow you to plan strategically.
You can easily calculate your Break-Even Point by using the following formula:
Fixed Costs/ Unit Margin (Revenue per unit -Variable Cost Per Unit) = Break-Even Point
This formula is helpful in understanding what your sales goals should be and to enhance your budgeting for Q4. With a solid understanding of your budget, you can adjust to hit your sales goals. For example, if you can’t sell more (which is an unknown variable) the only other way you can exceed your break-even is by cutting costs by getting less expensive materials or labor.
Tentho Can Help Get Your Business Holiday Season Ready
Tentho’s team of highly skilled financial experts excel in helping clients plan for their financial futures through best practices in their e-commerce accounting strategy. With expertise in e-commerce, they can help you drive online sales and implement ways to better manage your accounting strategies year-round. Tentho encourages business owners to plan ahead for future needs, such as Q4 holiday season retail sales. Their dedicated financial team of experts is ready to answer any budgeting questions you may have and are happy to pass along their industry-leading knowledge. If you’re ready to elevate your e-commerce business, talk to us today.