Choosing the right ecommerce accountant is an equal blend of finding an accountant with the technical skills you need, the ecommerce experience you want, combined with your evolution as an ecommerce business. Businesses move through a predictable set of stages, and your business needs the right fit depending on where you are in your development.
Here's the deal. Businesses that are just starting out aren't going to (and shouldn't!) spend hundreds or thousands of dollars every month on their accounting. It's unrealistic, and frankly, unnecessary.
The larger and more complex your ecommerce business, the more critical is it to have an accountant who specializes in your industry. Once you start making "real" money, you should invest in solid, accurate, and advisory accounting that can not only keep you in compliance but can help show you how to make more money with less effort.
Let's take a look at the different stages an ecommerce business goes through.
Stage One - Startup or Side Business (0 - $20k per mo in sales)
First, let's talk about your challenges in this startup phase.
Your biggest problems are that you don't have any money and don't know where to start. Chances are that you or your spouse is the one doing the books, and chances are, that's not where your training lies. It's likely that you dislike the work and it distracts you from what you feel you should be doing (sourcing products and advertising). As a result, you're either not doing the bookkeeping at all or you're doing it poorly.
You want to know how you should structure your business. You want to know the basics about taxes as they relate to your business like what you can legally write-off, what receipts you should be keeping (and how), and what you should know to keep yourself out of trouble with the IRS. Your main focus is likely on the initial growth of your business.
You're probably getting your feet wet by first selling on Amazon FBA because it's easy to start as a side gig while you work on firing your boss. If you've been paying close attention, you're a little wigged out that you might be running into trouble with the states because you haven't done anything about all the sales tax buzz (and you're starting to regret a little bit setting up that FBA store).
Your gut is right, you do need a Certified Public Accountant (CPA), but you don't necessarily need them to do your bookkeeping. Your CPA should be the person who helps you file your tax returns and is the bare minimum you need for your business. It’s always a great idea to get a CPA involved at the onset. When you have a business, unless you are a CPA yourself, just bite the bullet and find one that you like. Consider it a normal cost of doing business.
However, at this stage of the game, you don't need to pull out the big guns by having them do all the bookkeeping work for you - which is good because you probably can't easily afford them now anyway.
Here's the good news. You also don't necessarily need a CPA who specializes in ecommerce at this stage of the game. It might be nice to have, especially since they can grow with you (and you'll definitely want someone experienced in ecommerce at later stages), but the vast majority of CPAs can help you with the basic questions you need answers to - with the possible exception of your questions on sales tax. But even for that, you can just check out our free webinar, Sales Tax Reality for Amazon Sellers, and that should get you started in the right direction.
You can also subscribe to our newly launched YouTube channel for expert videos on ecommerce, business, and accounting.
With the right guidance, you should be able to effectively run your books on your own for a little while, and this is a good idea anyway just so you can understand the work before you hand it off to someone else. Doing the books yourself also allows you to save and put that money toward advertising or product purchases so you can continue to grow.
Whether you do the books yourself or you have someone else do them, I highly recommend you check out our Accounting for Amazon and/or Accounting for Shopify courses to ensure you understand the basics of ecommerce accounting. Both of these courses are enough to give you a solid push in the right direction whether you're an accountant or not.
With that said, taxes are a whole other animal, so at this point, I refer you back to that CPA I said you should get to help you with the basics. Here are a few tips for finding the right one for you.
- See if you like them and if they work the way you do.
- Look up their individual CPA license with your State Board of Accountancy to make sure they're legit.
You can do a quick license lookup for the CPA you're considering. Just do a search on the state they're licensed in (typically where they're located), and it'll show you if there are any negative claims against them (or if they don't have a license at all). Most people who hold themselves out as CPAs pass this test with flying colors.
- Find out how they bill.
There has been a big shift in the industry over the past five years toward "value pricing." This flattens out your costs over time and gives you an expectation of what you'll be charged and what will be included for that price. If they are still billing by the hour, this may be a tip-off that they are not as cutting edge as you'd like. Most "up-to-date" accountants are charging a set price and are often paid in advance of the work.
- See how they market themselves.
If they specialize in ecommerce, that's a big win for you. You want someone who understands your business. However, there's a very steep learning curve for accountants in this field of specialization, so if they say they specialize in ecommerce and professional services and non-profits and.... That means they don't specialize in any of them.
My last piece of advice is to start budgeting for a bookkeeper. You'll eventually need one if/when you leave this stage. We’ve seen many businesses propel quickly from Stage One to Stage Three. Keep that in mind and adapt according to the growth expectations for your business.
Stage Two - $20k - $50k per month in sales
Congratulations! You've made it to the second evolutionary stage of an ecommerce business. Here are your current challenges.
You might be making enough money now to make this your full-time endeavor. That's awesome, but it also adds some stress to your life because you are fully invested in the success of your business. You may even have a few employees - which also adds stress because now you're responsible for other people's livelihoods.
Hearing horror stories about Amazon shutting down businesses willy nilly has scared the bejeezus out of you, so you've expanded to selling on Shopify to develop your brand and maybe eBay as well so you can easily get rid of obsolete inventory.
Even though you can see performance data for the different shopping carts, it's challenging pulling all that information together in one place so you can see how your business is doing overall. If you procrastinated on your bookkeeping, you now have months worth of backlog and/or cleanup to do, and you're starting to realize that you need real help.
Or perhaps you have a bookkeeper already, but because you're looking at the shopping cart metrics, you have a gut feel for what your numbers should be, but your books don't match that, and you don't understand why.
Cash flow is a concern because you need sales to buy inventory to support your sales to buy inventory to support your sales to buy inventory... you get it. And you need to talk to the bank about getting a loan so you don't have to worry so much about the cash flow cycle. But for that, you need decent financial statements.
You need an accountant. You know you need an accountant. But you are also absolutely sure that you don't need a full-time accountant, especially if you've been doing the accounting yourself. If you aren't ready to pay for a bookkeeper, you'll likely land on a hybrid between do-it-yourself and do-it-for-you outsourced bookkeeping services.
Luckily for you, this is the space where almost all the current "ecommerce accountants" live. Accountants in this space will set up your books, do a bit of training, and then they let you run the books on a daily basis, but they'll clean things up for you at the end of the month. They tend to be a bit more affordable because a lot of the work still falls on your shoulders and/or is automated. However, you should be careful of "false" automation, that is, systems that seem to automate the work but don't scale and actually create more problems for you as you grow. This is a common problem with newer ecommerce accountants who don't yet have the experience to see where their choices are leading them - or you.
A monthly (hybrid) accountant is a decent choice if your business is running on three channels or less, your business isn't very complex (few purchase orders), and you have a low volume of transactions. However, as you try to grow and diversify, you'll find your business needs to be managed on more of a daily basis. These accountants typically don't have the time or resources to clean things up monthly once you start getting too big, and they will do one of three things: 1) drastically increase your price, 2) hand you off to firms who are better equipped to handle you (again, drastically increasing your price), and/or 3) fire you outright when you begin to become a too much of a drain on their resources.
You also run a risk at this stage of running into "ecommerce accountants" who don't actually know ecommerce accounting. Click here to get our free download of the 16 Questions to Ask When Looking for an Ecommerce Accountant to sniff out the best ones.
BONUS TIP - if they are pulling in all the transactions individually, they are probably doing it wrong and setting you up for problems down the road.
Stage Three - $50k - $3MM+ per month in sales
Wow - you made it to what we'd consider to be an "established seller." You've been around the block a few times, and you are serious about treating your business like a real business.
Here are your challenges at this stage.
You're now probably selling on three or more sales channels, and you want to understand your profitability broken down by a variety of factors such as profitability by channel, profitability by SKU, and others. You need to know your numbers so you can make concrete decisions in your business without having to use a "gut feeling." You want to know your best selling products across many channels, and you want to know how much you're making on them. You realize that a cloud inventory system may be able to help you with all this, but there too many choices, and nobody seems to understand how to help you get from point A to point B.
You're probably still selling on Amazon, but you have a love/hate relationship with them. You are working on building your own unique brands so you aren't constantly at Amazon's mercy. You are concerned about being on the states' "radar" for sales tax, and you're frustrated by the amount of time, energy, and money it costs simply to be compliant.
You need help optimizing your backoffice so you have the information you need so you can make decisions that'll make you more profitable. You're still concerned about cash flow but on a grander scale. You're interested in seeing overal trends in your business.
You're making enough money that you can hire a team to help you, but you're still wearing too many hats. You want to operate the business from a bird's eye view without having to be involved in the minutiae all the time.
You are our people.
At this level, you need a combination of resources to run your business most effectively. You need an actual accounting department. You should have a bookkeeper to handle the daily tasks necessary to keep your business running. You should have a controller (internal CPA) to oversee the accounting systems, train your bookkeeper, and help deal with issues as they arise. And you need tech people to make sure that systems are talking to each other appropriately and that the accountants are getting what they need to get their job done. However, you don't want to hire three people. This is where outsourcing comes into play. For about the same price as hiring a regular bookkeeper, you can pay for a fraction of all three roles to get an entire accounting department to support you the way your business should be supported.
If this sounds like what you need, and you're trying to find the right group for you, you'll want to be sure to ask the right questions. Start with the questions above - how do they work, how do they bill, do they specialize exclusively in ecommerce, and are their references good? Once they pass those tests, you'll want to see how much they really know about your industry, so ask them the questions from the handout from stage 2, 16 Questions to Ask When Looking for an Ecommerce Accountant, to help you know the questions to ask (and the answers you should receive).
If they pass all those questions, here are a few last questions you should be asking:And finally, the answers to all of the following questions should be YES:
- Do they have CPAs ensuring quality control over their clients’ books?
- Do the CPAs meet with the clients to review financials at least monthly?
- Are the books maintained on a daily basis, and do the clients have access, so they can access their information at any time?
- Can they provide you with gross margin by sales channel?
- Can they help advise you on the right cloud inventory solution?
- Can they handle filing sales tax returns for you in 25+ states on a monthly, quarterly, and/or annual basis?
- Do they reach out and work directly with your accounting tools (Xero, Veem, etc.) if something breaks?
- Can they evaluate whether a solution is optimal for your business, and can they go to an arsenal of other options if something isn't working out for you?
Hopefully you can now see why your choice of accountants when you're small may not be the same as your choice after you've grown. I've seen so many discussions about how much is a "reasonable" amount to pay for accounting services, and that's such an oversimplification of the issue. You should hire the accountant who can get you the results you want at the stage you're in and at a price you can afford.
For more details on this topic, please check out our free download, 16 Questions to Ask When Looking for an Ecommerce Accountant.