Running an E-Commerce Business is complex and very different to traditional businesses.
It requires a certain agility because things move at 1,000 miles an hour.
Google Algorithm changes and your sales are down in a day.
Facebook Algorithm changes and you can’t attribute sales anymore and your marketing takes a hit.
Your website is down and your business is down.
Black Friday is coming.
We all know what that means.
Crafting offers, strategies, campaigns, etc.
It’s not all bad.
It also means that if you can upskill yourself and be agile, you are in front of all the other Entrepreneurs.
You can win at this and very quickly.
A normal business might take 10 years to make you a millionaire. An E-Commerce business can make you a millionaire in a year (not always but this is certainly possible).
Let’s start with the basics:
What is the best structure for you to run an E-Commerce business?
There are 6 basic business structures for you to work with.
- Company 2. Unit Trust 3. Family Trust 4. Partnership 5. Sole Trader 6. SMSF
Each one has its own advantages and disadvantages.
Company is the best structure for bringing additional people to the business down the line – selling a part of the business, listing on stock exchanges, etc.
There are also combinations of these structures that work the best at times – Family Trust with a Corporate Trustee. Company with shares owned by a Family Trust. Company & a Holding Company.
There is no one size fits all.
Getting this right is very important because it can very much determine how much tax you pay/save.
Changing the structure down the line is not easy or cheap.
Speak with our team if you would like to know more.
Choosing the Right Website Platform:
Should you run your business on Shopify, Square, Woo Commerce or one of the hundred others?
There are so many options for you to choose from.
Some of the factors you need to consider in choosing the platform are:
- Ease of Use
- Cost (to an extent)
- Apps Eco System
- Integration with your Accounting System of Choice
- Ability to find developers
Make sure that you don’t select a platform just because of the low monthly fee. It could out cost several times over in the long run.
Choosing the Right Accounting Platform:
Once you know your Website Platform, it is time to choose your Accounting Platform.
The most popular option for Accounting Platform is Xero & QuickBooks. They are the front runners.
There are also heaps of other platforms other there too for you to explore.
Again, look at what will save you time in the long run.
Which platform is more intuitive and user friendly?
Which platform has better reporting for GST, VAT, Income Taxes, etc.?
Which platform has better integrations with other Apps?
Speak to our team if you would like an opinion.
Setting up Business Finances:
It is very important to get this right from the beginning.
There are so many entrepreneurs who fail to get the right advice upfront because they are worried about the cost.
Firstly, it isn’t a cost. It’s an investment. Change your mindset.
Secondly, it is very easy to forget about things from 10 months ago.
So if your business does scale then you might have cash flow issues, GST issues, tax issues because you don’t know your business finances well.
Setting up a finance system would include:
- Setting up multiple bank accounts for the business (operations account, GST account, profit account, marketing account, tax account, etc.)
- Setting up integrations between your Website, Accounting System, POS, etc.
- Setting up a system for gathering receipts
- Setting up a system for tracking numbers regularly
- Understanding how you take money from the business
- Understanding various dates for tax purpose
- Setting up Employee Expense Cards, Credit Limits, Supplier Limits, etc.
Setting up your Marketing:
This is probably the hardest and the most difficult part of the business for most Entrepreneurs.
You first need to understand who your customers are – age, demographic, likes, dislikes, buying patterns, etc.
Then understanding where these sort of people hang out – at the movies, on Netflix, on Reddit, Blogs, etc.
Then create value for these people and attract them with your solution.
Make sure to test as many marketing channels as you can (not at the same time though).
You need to set up reporting for Marketing Performance too – by channel & by campaign.
For example, do your Tiktok Reels perform than Youtube Sponsored Videos?
Should you try Influencer Marketing?
You should either learn marketing or hire out an agency.
Cashflow is a killer for E-Commerce businesses.
Yes, your customer pay you on order which is great.
But you may have already paid for that product 2 months ago when you purchased from your supplier.
So you are always catching up.
What are some of the things that you can do?
Negotiation better Supplier Terms?
Short Term Financing?
Cashflow needs to be understood and managed extremely well or else you will be stuck with orders and nothing to fulfil.
Do you have enough inventory?
Are you carry extra?
Do you have dead stock?
Are you regularly having to discount some products?
Are some items taking longer to sell than others?
What products are giving you the best net profit?
Can you have a loss leader to scale?
There are so many things to understand and uncover with this. You need the right systems & reporting to ensure your business can scale past the 6 figures.
Bookkeeping & Business Advisory:
Are your books completely up to date?
Do you know what your business can sell for down the line?
Do you have reporting system in place for future buyer?
Do you have an operating manual?
Are your accounting for all the expenses correctly?
Can you claim overseas trips for sourcing?
Are you claiming all possible government incentives and grants?
Again, there is so much to unpack here.
It is very important for you to understand the key accounting ratios that affect your business and every business.
The more you learn about these, the better off you will be in long run.
- Gross Profit Margin
- Net Profit Margin
- Return on Assets
- Return on Equity
- Return on Investment
- Debt-to-Equity Ratio
- Current Ratio
- Quick Ratio
- Inventory Turnover Ratio
- Days Inventory Outstanding
- Accounts Receivable Turnover Ratio
- Days Sales Outstanding
- Accounts Payable Turnover Ratio
- Days Payable Outstanding
- Working Capital Ratio
- Cash Ratio
- Operating Cash Flow Ratio
- Free Cash Flow Ratio
- Price-to-Earnings Ratio
- Price-to-Sales Ratio
- Price-to-Book Ratio
- Earnings per Share (EPS) Ratio
- Dividend Payout Ratio
- Dividend Yield Ratio
- Asset Turnover Ratio
- Gross Margin Return on Investment (GMROI) Ratio
- Return on Ad Spend (ROAS) Ratio
- Customer Lifetime Value (CLV) Ratio
- Churn Rate Ratio
- Conversion Rate Ratio
- Average Order Value (AOV) Ratio
- Customer Acquisition Cost (CAC) Ratio
- Customer Retention Rate Ratio
- Net Promoter Score (NPS) Ratio
- Email Open Rate Ratio
- Email Click-Through Rate Ratio
- Email Conversion Rate Ratio
- Organic Search Traffic Ratio
- Paid Search Traffic Ratio
- Social Media Traffic Ratio
- Website Traffic-to-Lead Ratio
- Lead-to-Customer Ratio
- First-Time Customer Ratio
- Repeat Customer Ratio
- Abandoned Cart Ratio
- Bounce Rate Ratio
- Exit Rate Ratio
- Time on Site Ratio
- Time on Page Ratio
- Pageviews per Session Ratio
- Session Duration Ratio
- Cost of Goods Sold (COGS) Ratio
- Operating Expense Ratio
- Interest Coverage Ratio
- Debt Service Coverage Ratio
- Gross Debt-to-EBITDA Ratio
- Net Debt-to-EBITDA Ratio
- Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) Margin Ratio
- Operating Profit Margin Ratio
- Net Profit Margin Ratio
- Average Collection Period Ratio
- Debt Ratio
- Debt-to-Asset Ratio
- Equity Multiplier Ratio
- Fixed Asset Turnover Ratio
- Intangible Asset Turnover Ratio
- Inventory Holding Period Ratio
- Days Sales in Inventory Ratio
- Net Income Ratio
- Net Margin Ratio
- Return on Capital Employed (ROCE) Ratio
- Sales Growth Rate Ratio
- Gross Domestic Product (GDP) Growth Rate Ratio
- Return on Sales (ROS) Ratio
- Debt-to-Capital Ratio
- Earnings Yield Ratio
- Price-to-Cash-Flow Ratio
- Price-to-Free-Cash-Flow Ratio
- Price-to-Operating-Cash-Flow Ratio
- Earnings Before Interest and Taxes (EBIT) Margin Ratio
- Gross Profit Ratio
- Return on Investment Capital (ROIC) Ratio
- Gross Revenue Ratio
- Operating Revenue Ratio
- Non-Operating Revenue Ratio
- Non-Operating Expense Ratio
- Research and Development (R&D) Expense Ratio
- Income Before Tax (IBT) Ratio
- Pre-Tax Return on Assets Ratio
- Pre-Tax Return on Investment Ratio
There is so much more to this. We can talk for days about E-Commerce Accounting.
If you are looking for better Accounting representation, book a discovery call with our team.