The 8 Most Common eBay Accounting Mistakes (and How to Avoid Them)
Estimated reading time: 7 minutes.
There are somewhere between 12 and 24 million ecommerce sites online.
That’s a lot of sellers, and you can bet that the vast majority of them are not trained accountants.
With sites like eBay making it easier than ever to set up shop digitally, there are plenty of business owners managing cash flow and business accounts for the first time. That means a lot of room for error, and a lot of lessons learned and shared with others.
This blog is part of our eBay accounting series. So far, we’ve provided a great base to get you going with your business accounts. If you’ve been on this journey with us, you’ll have learned how to get set up for success, the accounting software you need, what fees you’ll be charged and how to reduce them, and which taxes you need to pay and how.
This time, we’re talking about some of the most common accounting mistakes that eBay (and ecommerce) sellers make - especially early on. Some of these things may prove obvious, but some won’t; and you may be surprised by the errors that compound if they’re not caught early.
You can find plenty more eBay resources outside of this series over on our blog.
In this blog on eBay business accounting mistakes, the fifth in our eBay accounting series, we discuss the top 8 most common:
Table of Contents
Plus, we’ll chat briefly about the benefits of working with a specialist ecommerce accountant for smart business accounting.
Separate your eBay business accounts from your personal accounts
It’s tempting to centralize and start small in the beginning. But this isn’t sensible when it comes to your business accounting for a number of reasons:
- Distinguishing between personal and business transactions becomes a slow manual process that will only get worse as you grow.
- Same goes for expenses: how can you understand your eBay cash flow if your groceries and rent are in the mix too?
- Tax compliance will be a nightmare, especially if you earn a salary as well as eBay income - imagine that filing experience.
- There will be no clear audit trail, which might get you in trouble down the line. Your business won’t have the credibility or the professionalism that will reassure the tax authorities, who could come asking questions.
- You can’t build up your business credit score. This works similarly to personal credit scores, and you may need it later on if you want to explore loans or insurance.
There’s no benefit to keeping them together. So why would you?
Our blog on Profit First for ecommerce sellers goes into greater detail about how to manage your money in different “buckets”, essentially. This helps to ensure that you save for your goals over time. Check it out here.
Don’t DIY everything - automation is here to save you
As ecommerce has exploded, so has the technology to make it easier for you to do it all.
From the accounts to inventory, fulfilment, marketing, even automating customer feedback and testimonials - the trick is knowing not whether to use it, but what to invest in, and when.
And the answer should be obvious from the title of this blog.
Yep, you guessed it - your accounts. And we’re not just saying that… think about it. Money is required to fuel every aspect of your business, down to the platform you’re using to run it. If this goes down, so does your empire, so start there without question.
Organize your books properly
This one is a biggie. As you’ll know if you read our accounting software guide, there’s a lot to keep track of in ecommerce bookkeeping.
So, organizing your finances properly is crucial to ensure nothing gets missed and your hair stays intact during tax time. Or any other time of the year, come to that.
But what do we mean by organizing books properly? When it comes to ecommerce, that means via the accrual method.
The accrual method gives you visibility over the past, present and future of your transactions. Money is recorded as orders are raised, not as money changes hands, so you know what you can expect to be paid or to owe in the near future. This makes forecasting far more accurate, and investments far more informed.
You’re much less likely to run out of cash or run into cash flow issues using this method well.
But this doesn’t come automatically with accounting software. You need an app like A2X to do this for you.
Luckily, A2X has numerous other benefits and features for your accounts besides organizing them via the industry-standard, GAAP-approved accrual method, but we’ll touch on those more later.
Make sure you know how to recognize revenue like a pro
What is “revenue”?
Revenue is income, but income is not profit. Your bank deposits are made up of multiple customer charges, not just what they paid for your item.
They might have paid sales tax, shipping costs, perhaps extra for services like gift-wrapping if you offer this - these all need to be recorded as something else, so don’t forget them.
Counting these in your profit margins will lead to skewed financials and books that don’t show an honest picture of your business.
Don’t forget your platform fees!
Ah, fees! These also come out of your bank deposits - so they can pass you like ships in the night if you don’t keep up with them.
Make sure your fees are counted in your expenses and profit margins so that you know where your money is going.
When you integrate A2X for eBay with your accounting software, it will list out all the fees that were taken from your deposits. By keeping tabs on these, you can find ways to minimize them, and you’ll notice if they increase or make a mistake.
Make sure you catch everything in your COGS calculations
Similar to the above two: you need to make sure that you understand exactly how your costs are tallying up when selling your goods. Don’t leave anything out, because your profit margins will soon get swallowed up.
So, what should be counted in your Costs of Goods Sold (COGS)?
Every expense associated with the sale of that item should be counted, as well as the cost of it to you in the first place. You might have paid shipping costs for it, or paid to list it, and to market it. Then there are your overheads, any staff costs - maybe you use a third-party fulfilment network.
All of these costs compromise your profit margin, so you have to take them into consideration when figuring out what you’ll be left with at the end. Have you still made money?
Learn how to manage inventory (or get someone else to do it for you)
Inventory can directly affect customer experience, and this, at the end of the day, will dictate how well you perform on eBay.
Knowing what you have in stock, what’s been sold, what’s in transit, at customs, damaged, or being returned, is essential to efficient operations. If you don’t keep a constant track of these things, you might start selling stock that you don’t have, buy more than you need, or start losing them which is just money down the drain.
How can you keep your customers happy if you can’t fulfil their orders or respond to queries with helpful information?
All of this is confusing enough when you sell on one platform. What if you’re keen to expand?
There are fulfilment options open to you as an eBay seller that take care of all this on your behalf. Amazon’s Multi-Channel Fulfillment program is one example of this. You can find more in our eBay automated fulfilment blog here.
Get up close and personal with your books regularly
Most of us have experienced, at least once, the anxiety of checking our personal bank balance, unsure of what we might see. You don’t ever want that feeling with your business account.
You should be checking your eBay accounting software and bank balances regularly, even if just for a few minutes.
The more you do this, the more you can get a feel for the patterns happening in your business and make strategic, informed decisions.
Goodbye, eBay Mistakes - Hello, Experts!
Another way to make smart, strategic and informed decisions? Work with the experts.
Specialist ecommerce accountants understand your industry, its evolution, its challenges, and the best solutions for your business.
Skip the mistakes we’ve mentioned or come back from them stronger than ever with the help of an expert on your side.
What Did You Think?
This is the final part of our eBay accounting hub series. If you’ve been on the journey from start to finish with us, we’d love to know what you think.
Did you find anything particularly helpful? Did we miss anything?
We’d love to hear your feedback so that we can make these resources as effective as we can. Feel free to get in touch with us here. Thank you!