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Operating an e-commerce business has the potential to open you to a world of customers as you create employment opportunities and sell things people love.
However, there are a lot of moving parts to stay in control of. There is inventory, marketing, customer experience, freight and of course, the financial side of things.
If you’re not organised, it’s easy to lose track of where you stand financially. This can result in you being behind on your targets and owing a lot of tax, often without realising.
At Crest Accountants, we help e-commerce companies make sure they are generating profits and stay in control of things like cash flow, reporting and tax. Here are some of the tips we share with our clients.
1. Know your numbers
While working with an accountant and bookkeeper will take a lot of tasks off your to-do list, as the business owner you still need to have a clear understanding of your e-commerce business make or break figures.
As a retailer, you should know:
- What your break-even number is
- How much money do you have to generate each quarter to cover your expenses and what profit margins you are aiming for
- How your business has performed in the past and what factors will help you to improve or replicate what you have achieved previously
Many e-commerce business owners ‘fly blind’ when it comes to the figures that matter in their business. It makes so much sense to be crystal clear on these numbers so you can track your progress and set goals to work towards. If you’re not confident in this area, arrange a meeting with a specialist e-commerce accountant.
2. Know your cycle
Some e-commerce businesses have steady sales while others rely on seasonal peaks. Others have an annual sales drive that brings in the bulk of their revenue.
Once you have been in business for a while, you’ll be able to recognise the peaks and troughs that you encounter. This will help you make a plan for your payments; for example you may be able to negotiate deferred payments terms to a supplier and send the money through when you have a surplus of cash (perhaps at the end of the financial year). Alternatively, monthly payments may make more sense for you.
Sit down with your accountant to review your past financial performance and identify patterns so you can start to shape your spending around them. This will help you to stay on top of cash flow and avoid those stressful moments when you realise you have bills to pay but no funds to cover them with.
3. Review your budget
Every business needs to be clear on what they are spending their money on.
It is so easy for things like subscription creep and unauthorised expenses to eat away at your profits. Many businesses have a budget in place but fail to take the time to compare this budget with their actual monthly spending. A quick review can show why cash flow isn’t where it should be.
There are probably several expenses that can be reined in or cancelled completely if you take a couple of hours to review your spending. From packaging to stationery, there are usually ways to cut back.
4. Optimise your best-sellers
E-commerce is a survival of the fittest world. Instead of attempting to be all things to everyone, focus on the areas where you are performing the best.
Again, looking back will help you to move forward. Take a look at your sales results to see which categories are not only selling well but are generating the most profits. Then work with sales and marketing to figure out how to get these products even further into the market.
You may have products that are not worth stocking because they sell so slowly, cost too much to keep in stock or barely generate any profits. If this is the case, it’s probably best to discontinue these items.
It is possible to grow revenue but lose profits if you’re not focused on the right things. Work with your accountant to make sure this is not the case.
5. Find ways to boost average order value
This is a big one for e-commerce businesses. Every single order takes your team time to fulfil and ship. If you can increase the value of an average order, even by a few per cent, you’ll maximise profits.
Amazon is the master at this; it recommends items as people shop. Woolworths has the ‘Have You Forgotten’ page before you check out, which highlights items people have purchased in the past. You may not have as sophisticated an algorithm but you can still make changes to your website that recommend best sellers or pair items together e.g recommending a pair of socks to go with some running shoes.
Investing some time into developing the technology to increase the value of every sale will be worth it. In addition to this, work on your ‘after-sales’ strategy and stay in touch with your customers; it’s always more cost-effective to sell to an existing customer than it is to attract new ones.
A final tip
Finally, if you’re serious about growing your business beyond seven figures, you can’t manage the money and cash flow side of things on your own.
Work with a bookkeeper and accountant so you have visibility around your numbers, clear targets, up to date information about your spending and a plan that will help you achieve your future goals.
Need a specialist e-commerce accountant? Reach out to Crest Accountants today.
Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice. Whilst the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact upon the accuracy of the information.
