Technology
One key consideration is technology. By being fully computerised saves the client accountancy fees and hours of time. This in turn means as advisors we have more time and scope to help the business grow.
One of the first things we look at when working with an e-commerce client is to check if they are using software that makes the tracking easier for them – something like Link My Books or A2X. This shows that the client is keen to streamline and make life as simple as possible for both themselves and for us.
We also ask the client to check out Seller Presto and Helium10 if they are not already aware of these marketing options. These can sometimes help a new e-commerce business to push to the top of the rankings and get their products shown in the right spaces. More exposure usually equals more sales. More sales equals more marketing budget and so the cycle goes on.
It’s also vital that e-commerce businesses link their cost of sales so that every time an item is sold their product costs are updated within the system. Usually there are many items in transit at any given point in time and it’s important to be able to match costs with income so that the client doesn’t think they have made more profit than they have done.
The location of the goods
Another practical consideration is whether your client, as with many e-commerce sellers, source their goods from China. These goods can take months to arrive so need to be ordered well in advance. Often the client will make stage payments for them and usually in US Dollars. This can make the accounting tricky as you need to ensure you have picked up the correct cost, are aware of what is in transit and what is still to be paid or has been paid upfront.
Tax jurisdictions and VAT
Some e-commerce sellers sell in multiple tax jurisdictions. They will need to have vat, GST, or sales tax agents in different locations and any “vat” due overseas will need to be removed from the UK vat return. If these are not identified and excluded the client will pay vat twice in error. If the client is not using automated software like those mentioned above then it is REALLY difficult to get enough detail on the destination address quickly to check if the sale is in fact vatable in the UK. The last thing you want to be doing is trailing through reports to check an address on every single sale!
Any loss or damage to your goods in say an Amazon warehouse would be covered by an FBA Inventory Credit. These amounts are a form of compensation for losing or damaging your stock and are not vatable.
You also need to check the vat position on sponsored ads. Are they billed from a UK place of business with a UK vat number and if so, is the client claiming back the 20% vat. Some sponsored ads may be billed from Luxembourg and if the client is well established, they may have switched where the sponsored adds bill has come from over the last few years – so always worth a check!
Management of information
Is the client splitting their sales per region and/or per product line? Can they easily see which locations/lines are profitable and which are not? This is essential information that is needed for management purposes so that the team can decide where to focus their time and energy.
Final thoughts
As advisers we use our expertise of what we have seen previously to help and point them in the right direction, allowing new businesses to learn from mistakes made by others and get a more direct route to success from the outset. By looking at these areas you can make sure the client is prepared and ready to go.
