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.

Wait.

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:

Business Structure:

What is the best structure for you to run an E-Commerce business?

There are 6 basic business structures for you to work with.

  1. 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.

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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)
  • Scalability
  • Apps Eco System
  • Integration with your Accounting System of Choice
  • Support
  • 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.

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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.

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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.

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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.

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Cashflow:

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?

Pre-orders?

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.

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Inventory:

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.

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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.

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Accounting Ratios:

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.

  1. Gross Profit Margin
  2. Net Profit Margin
  3. Return on Assets
  4. Return on Equity
  5. Return on Investment
  6. Debt-to-Equity Ratio
  7. Current Ratio
  8. Quick Ratio
  9. Inventory Turnover Ratio
  10. Days Inventory Outstanding
  11. Accounts Receivable Turnover Ratio
  12. Days Sales Outstanding
  13. Accounts Payable Turnover Ratio
  14. Days Payable Outstanding
  15. Working Capital Ratio
  16. Cash Ratio
  17. Operating Cash Flow Ratio
  18. Free Cash Flow Ratio
  19. Price-to-Earnings Ratio
  20. Price-to-Sales Ratio
  21. Price-to-Book Ratio
  22. Earnings per Share (EPS) Ratio
  23. Dividend Payout Ratio
  24. Dividend Yield Ratio
  25. Asset Turnover Ratio
  26. Gross Margin Return on Investment (GMROI) Ratio
  27. Return on Ad Spend (ROAS) Ratio
  28. Customer Lifetime Value (CLV) Ratio
  29. Churn Rate Ratio
  30. Conversion Rate Ratio
  31. Average Order Value (AOV) Ratio
  32. Customer Acquisition Cost (CAC) Ratio
  33. Customer Retention Rate Ratio
  34. Net Promoter Score (NPS) Ratio
  35. Email Open Rate Ratio
  36. Email Click-Through Rate Ratio
  37. Email Conversion Rate Ratio
  38. Organic Search Traffic Ratio
  39. Paid Search Traffic Ratio
  40. Social Media Traffic Ratio
  41. Website Traffic-to-Lead Ratio
  42. Lead-to-Customer Ratio
  43. First-Time Customer Ratio
  44. Repeat Customer Ratio
  45. Abandoned Cart Ratio
  46. Bounce Rate Ratio
  47. Exit Rate Ratio
  48. Time on Site Ratio
  49. Time on Page Ratio
  50. Pageviews per Session Ratio
  51. Session Duration Ratio
  52. Cost of Goods Sold (COGS) Ratio
  53. Operating Expense Ratio
  54. Interest Coverage Ratio
  55. Debt Service Coverage Ratio
  56. Gross Debt-to-EBITDA Ratio
  57. Net Debt-to-EBITDA Ratio
  58. Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) Margin Ratio
  59. Operating Profit Margin Ratio
  60. Net Profit Margin Ratio
  61. Average Collection Period Ratio
  62. Debt Ratio
  63. Debt-to-Asset Ratio
  64. Equity Multiplier Ratio
  65. Fixed Asset Turnover Ratio
  66. Intangible Asset Turnover Ratio
  67. Inventory Holding Period Ratio
  68. Days Sales in Inventory Ratio
  69. Net Income Ratio
  70. Net Margin Ratio
  71. Return on Capital Employed (ROCE) Ratio
  72. Sales Growth Rate Ratio
  73. Gross Domestic Product (GDP) Growth Rate Ratio
  74. Return on Sales (ROS) Ratio
  75. Debt-to-Capital Ratio
  76. Earnings Yield Ratio
  77. Price-to-Cash-Flow Ratio
  78. Price-to-Free-Cash-Flow Ratio
  79. Price-to-Operating-Cash-Flow Ratio
  80. Earnings Before Interest and Taxes (EBIT) Margin Ratio
  81. Gross Profit Ratio
  82. Return on Investment Capital (ROIC) Ratio
  83. Gross Revenue Ratio
  84. Operating Revenue Ratio
  85. Non-Operating Revenue Ratio
  86. Non-Operating Expense Ratio
  87. Research and Development (R&D) Expense Ratio
  88. Income Before Tax (IBT) Ratio
  89. Pre-Tax Return on Assets Ratio
  90. Pre-Tax Return on Investment Ratio

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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.