9 Questions to Ask Before Choosing an Accounting Firm for Your eCommerce Business
Whether you’re an established eCommerce business or just getting started, hiring the right accounting firm is critical to your company’s long-term growth and sustainability.
Maybe you’ve never hired an accountant before. Or maybe you’ve worked with an incompetent one and are afraid of ending up in a similar situation again. Either way, finding and vetting an accountant can feel overwhelming. You know you want someone with eCommerce experience, of course, but what else should you look for? And what specific questions should you ask?
To make the process easier—and to make sure you’re getting the best accountant for your needs—we’ve put together a list of 9 main questions that will help you identify the best person for the job.
1. Do they specialize in eCommerce?
Accounting for eCommerce requires having a firm grasp of the unique accounting principles that pertain to the industry, so make sure your firm specializes.
Business success strategies relating to growth, profitability, and cash flow may produce great results in one industry but dismal results in another. A “Jack of all trades” firm will most likely not be the master you’d like for your eCommerce business.
When choosing an accountant, ask about their clients in the eCommerce space and the results they’ve been able to achieve for them. Verify if they have worked with businesses similar in size to yours that sell products on the same marketplaces and shopping carts as you.
Accountants with eCommerce experience can gauge your business’s financial health and alert you when they see something isn’t right. For instance, cash flow problems often take companies by surprise and are a common concern for eCommerce businesses. It’s your accountant’s job to flag the possibility of a cash crunch and give you options to avoid it. Accountants with relevant experience can also help you identify a more commercially viable business model (for example, “consign-to-order,” “made-to-order,” etc.).
They should also be familiar with nuances unique to an eCommerce business, like the processing of online payments and refunds among vendors or merchants. Without sufficient experience with eCommerce clients, your accounting firm won’t be able to contribute significantly to your business’s growth.
3 Specific Questions to Ask:
1. Are they familiar with accounting principles relevant to the eCommerce industry?
2. Do they have other eCommerce clients?
3. Are they well versed in eCommerce-specific processes, like online payments, fees and refunds?
2. Are they familiar with eCommerce business technology?
Accountants who work with an eCommerce business should have hands-on experience with the digital tools required to keep financial data in order. This facilitates quick reconciliation and allows you to revisit the data, should the need arise, as well as enabling your accountant to recommend improvements specific to your needs.
For instance, assume that you have been using QuickBooks Desktop (QBD) for your business. QBD is an older software with limited connections compared to modern SaaS and integration software and thus requires a lot of manual work using CSV files and tedious data entry.
Many accountants have expertise in QBD, but if they do not understand that using QuickBooks Online or Xero can increase flexibility, data quality, and efficiency, you may lose out on important information, such as automated class tracking per eCommerce channel. This leaves you with a profit and loss statement that lacks granular information such as expenses tracked per sales channel.
Look for an accounting firm that will evaluate your current setup and suggest new technology that can streamline your data flow and provide clear insights into how various aspects of the business are running. You’ll benefit from their expertise as they can help you streamline your accounting procedures and policies to bring efficiencies.
3 Specific Questions to Ask:
1. What’s their experience with cloud-based accounting tools?
2. Do they have access to and expertise in up-to-date accounting software?
3. Can they help you streamline your data flow and optimize your books?
3. Do they understand the complexities of multi-state sales tax?
Sales tax is a state-specific phenomenon in the U.S. There’s no one “national” sales tax rate you can apply to your invoice and be done with. On top of this, states allow cities, counties, and other local areas called special taxing districts to levy sales taxes of their own, and all of these taxes are subject to frequent change.
Since tax laws differ among states, eCommerce businesses need state-specific guidance. Therefore, it’s critical to have a sales tax expert at your disposal. Ideally, your accountant should have a thorough knowledge of indirect taxation.
Ask them about South Dakota v. Wayfair and the implications this decision has on your specific situation. If you’re hiring a quality candidate, they will go beyond typical accounting issues to help you navigate the complexities of multi-state sales tax. They should be able to guide you regarding specific topics like economic nexus tracking and evaluation, secondary nexus evaluations with regards to affiliates, click-through, and Non-Collecting Use reporting.
Without an accounting firm that understands these complexities, your eCommerce business is at risk of non-compliance audits and expensive tax penalties. Having a reliable accounting partner saves money through increased compliance, audit avoidance, and direct savings through the proper setup of Streamlined Sales Tax Governing Board state registrations.
3 Specific Questions to Ask:
1. Do they have experience working with indirect taxation?
2. Are they familiar with the South Dakota v. Wayfair and its implications?
3. Do they know what the following terms mean: economic nexus tracking and evaluation; secondary nexus evaluations with regards to affiliates; click-through; and Non-Collecting Use reporting?
4. Do they understand the complexities of inventory management?
At first glance, inventory management seems straightforward. Close up, that’s rarely the case.
Unless your accountant has adequate experience with inventory management, they may find it difficult to help you identify potential efficiencies. Ideally, your accountant should have appropriate inventory management experience and be able to help you maintain the required stock while minimizing the allocation of working capital to inventory.
3 Specific Questions to Ask:
1. Do they know what variation relations are?
2. How will they help you minimize the cost of holding inventory?
3. Can they provide insightful evaluations based on your inventory records?
5. How will they optimize my cash flow?
Cash flow is the heart and soul of your business. Poor cash flow can halt your operations overnight, but managed well, it can deliver big benefits, such as being able to jump on bulk discount opportunities.
With cash, the key is to hit the sweet spot. You want free and available cash, but excess cash could be lost opportunity.
eCommerce businesses need real-time information about where their cash is coming from and where it's being used. Lack of experience here can directly—and considerably–impact your profitability. The right accountant will have solid experience analyzing and optimizing cash flow for eCommerce businesses using cash flow projections and credit policies, and negotiating payment terms with creditors.
From optimizing your collection methods to identifying the amount of cash you need in the bank, your accountant should be able to guide you all the way. Partnering with the right accountant will save hundreds, if not thousands, of dollars in the long run
3 Specific Questions to Ask:
1. Are they familiar with cash flow issues specific to eCommerce businesses?
2. Are they well versed in cash flow optimization techniques?
3. Do they have specific examples of how they were able to help an eCommerce client save money through optimal cash management?
6. Can they create custom KPIs?
Accountants often stick to the key performance indicators they learned back in the classroom. But you need an accountant who understands your business from the inside and can generate custom KPIs that will help you keep track of issues your business is currently facing. These metrics can then be compared with industry benchmarks.
Of course, every business is different, and taking a benchmark “as is” can give you misleading information. Your accountant also needs to understand the factors that drive these KPIs and make informed decisions that can guide you into the future.
If your accountant lacks this ability, you may not realize you have a problem brewing somewhere in your business until it blows up into something big. Having a reliable accountant who has spent time looking at KPIs for eCommerce clients can improve your business’s health and make it more resilient
3 Specific Questions to Ask:
1. Do they have experience analyzing KPIs for eCommerce clients?
2. Have they specifically created custom KPIs relevant for an eCommerce business?
3. Do they understand why your business’s KPIs could differ from industry benchmarks, and how to interpret these deviations?
7. Can they periodically stress-test my business’s financial health?
Your business may be in good shape now, but if COVID taught us anything, it’s that we should expect the unexpected. You need to prepare your business to survive through tough times.
Traditional accountants will tell you to have enough cash socked away and to keep your balance sheet healthy. That’s great advice, but your accountant also needs to proactively look for financial loose ends so you can tie them up before things go south. Accountants do this by simulating “what-if” scenarios. Basically, they’ll change one variable at a time and see what your business would look like if that variable were to turn unfavorable.
For example, if COVID lockdowns put eCommerce deliveries on hold again, would you have enough cash to make it through the next 3 months? Your accountant will need specific experience running “what-if” simulations for eCommerce clients to be able to provide insightful guidance.
Unfortunately, many accountants are simply not able to deliver this level of service. Therefore, you need to ensure you’re partnering with the right accounting firm.
3 Specific Questions to Ask:
1. Do they know how “what-if” scenarios work and how to identify vulnerabilities from them?
2. Do they have experience running “what-if” simulations for eCommerce clients?
3. What are the issues they found while running “what-if” simulations for their clients and how did they help fix those issues?
8. Are they Familiar with Tax Planning and Tax Compliance?
Tax planning and compliance are critical components of your eCommerce business that change frequently in the face of new and evolving tax regulations. Non-compliance invites penalties, and a lack of adequate tax planning puts a dent in your bottom line. This makes it imperative that your accountant has experience and expertise specific to eCommerce businesses.
For instance, S-Corps are taxed under Subchapter 5 of Chapter 1 of the IRC, saving you as much as 15.3% on your tax bill if used optimally. Even if you’re an LLC, you can request the IRS to treat you as an S-Corp by filing an election and continue to be treated as an LLC for legal purposes.
ECommerce businesses can even benefit from the Accountable Plan, an IRS-approved reimbursement program that allows eCommerce businesses operating from home to deduct rent, car expenses, mobile phone expenses, and several others. Think of the money you can save on your tax bill simply by choosing an accountant who has niche expertise!
3 Specific Questions to Ask:
1. What type of business entity would you recommend for my eCommerce business and why?
2. How can you help me trim my tax bill?
3. Have you rendered tax planning and compliance services to other eCommerce businesses? What was your experience working with them?
9. Are they proactive problem-solvers who will become an integral part of your team?
A number cruncher who looks focuses on historical data can only help your business so much. What your eCommerce business needs to grow is a far-sighted accountant.
Isn’t being far-sighted the entrepreneur’s job? Sure, entrepreneurs use their far-sightedness to drive the business into the future, which is why they need an accountant to help guard their business's financial health. You can’t wear all the hats. By delegating your bookkeeping to an experienced accountant, you free yourself up to focus on growing your business.
Don’t hire an accountant who will just record your transactions and tells you if you’re in the red or the black. Find an accounting firm that records the data, analyzes it, and provides valuable insights on what can be improved, and how.
When an accounting firm takes the time to understand your business and look for patterns in your transactions, they’ll be able to set goals for the short, medium, and long term with the use of accounting tools like forecasts and budgets. Cash flow forecasts, for example, help business owners understand if they’ll face a cash crunch, have excess cash, or just the right amount of cash the next month, quarter, or year.
An accountant who is invested in your business and works as a reliable partner can help you set realistic goals and fast-track your business’s growth.
3 Specific Questions to Ask:
1. How will they help you prepare your business for the future?
2. Based on your current financials, where do they see your business in the next 5 years?
3. What tools will they use to assess your business’s future and ensure its success?
Set yourself up for consistent growth
If you’re running an eCommerce business, chances are you already have too much on your plate.
Doing your own accounting, hiring the wrong accountant, or not taking making the most of an accounting firm’s expertise means missing out on opportunities. From planning inventory to optimizing listings, synchronizing across channels to setting up effective marketing and advertising campaigns, eCommerce is a complex and dynamic industry. With an accounting partner as an integral part of your team, you’ll be able to grow your bottom line by optimizing your business.
We at eSenshi have turnkey accounting solutions for eCommerce businesses. This means that you can invest your time in what you do best while we take care of your accounting and guide your growth.
Get in touch today and let’s set you up for consistent growth!
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