In Everything is Now E-Commerce - No, Seriously we explored the changing landscape for doing business – from the rapid growth of an online ‘world’, to an increasingly virtual marketplace.
In our second sister article, If Everything is E-Commerce, what about Regular Accounting? We left the discussion with our industry at a decision point: will we choose to embrace the general ledger as the one place left that owners can find the overall picture; will we choose to encourage that evolution? In other words, will accountants and bookkeepers help the GL to become today’s “Z tape”?
Here are a few of the conclusions about where we are and where we are going:
- The complication for our industry is not that we “should” care. It is that we will be affected by this sea change in our economy, whether we choose to care or not.
- This all isn’t ‘because of’ the pandemic. It’s not going to ‘go back’ to ‘normal’. These changes were already in the mail for us, being anticipated widely for years.
- 2020 did do something – it accelerated and frankly democratized the problem of virtual competition among a much wider variety of businesses and their owners.
- In other words, E-Commerce isn’t just about “online retail” anymore.
- The idea of E-Commerce is rapidly becoming less of a ‘niche’ specialty, and more of a given part of conducting business. Kind of like having a website – it went from something that was ‘cutting edge’ to something that was REQUIRED to succeed.
So we are down to the big question:
What is required to actually serve a client that engages in any kind of e-commerce?
Whether you remain unconvinced or even fundamentally unsure about whether or not EVERYTHING is actually e-commerce or not, read on! Some of the nuts and bolts below might just convince you that hedging your bets on this is the better way forward. Not to mention you might find some information that will make your current practice better today.
First, the elephant in the room: Why do our clients do this to us?
Business owners don’t have to envision themselves as becoming “e-commerce” or even think being online is a core part of their business in order to engage with these platforms.
Solutions are marketed as easy to use, self-contained, and internally consistent. They’re sold not as all-in-one solutions, but as extras or supplements to traditional sales. “Free money” for what you’re already doing as a business owner, essentially.
Clients don’t mean to keep anything critical from us, or make things complicated for us. It doesn’t even register that it might affect us. Frankly, it’s not about us. At all.
But it sure does affect us. These platforms can end up messing with much of their business’s financial picture without ever realizing that it’s happening.
What is affected, accounting-wise?
Basically, it’s sales. And anything that touches sales. What exactly is affected varies platform to platform (more on this maddening aspect of things later!) So, without a good recording of what is happening in all these sales channels, no matter how ad hoc or minor in a businesses scheme of things, this is what can suffer:
- Sales - the honest to goodness selling of things can be entirely missed
- Sales by Type/Dept - what you are selling can be misaligned, affecting Cost of Goods Sold and Inventories
- Sales Taxes - Correctly capturing what was charged and assessing what’s owed
- Other Liabilities - think returns, chargebacks, gift certificates, customer deposits
- Other Assets - think funds held in escrow, undeposited funds, etc
- Loans and Equipment - some platforms allow customers to factor invoices or borrow against future sales - this might be to fund leasing of related equipment like a POS system. But it can also be just for general business loans.
And let’s not forget the lovely transaction fees, platform fees, advertising fees, and listing fees… just to name a few.
This list goes on, but the overall situation is pretty clear: there is a whole world of fundamental financial activity going on inside these platforms, often behind the opaque total of one measly deposit! There are whole P&Ls and Balance Sheets worth of activity that are only housed inside systems that are not only untraditional, but quite often not easy to access or interpret.
What about automations and integrations with the GL?
As we mentioned previously, many channels have their own accounting integrations. But even if data comes with all of the detail, there is no guarantee that will be the way it’s done across many platforms. Every integration is its own system of logic, playing by its own rules. Some summarize by deposit, others by individual sale, others with cut-offs that don’t correspond to any typically used unit of time. The result is usually GL summaries that don’t make sense for reporting purposes, aren’t internally consistent, or contain so much detail and activity that the GL becomes unusable. In any case, reconciliations become a nightmare.
Any solution must accomplish two things:
- Get all the data in from each platform, coded to what it actually is
- Standardize all that data inside the GL so workflows hold and a total picture can be seen
Bookkeep is an app born straight from these e-commerce trenches. It was created when a bookkeeping firm got tired of trying to navigate all of this stuff and sought to automate it instead.
Bookkeep creates automated daily sales summaries for each connected platform.
The fact is that individual days matter to more and more businesses – even when it comes to online purchasing! Daily summaries allow sales to be broken down in reporting in all the ways that matter to owners.
Given that each platform is different, it makes sense that booking a daily summary for each platform, although it involves more entries, simplifies workflows and reconciliations in the long run.
On the other hand, these are still summaries! That means they still allow enough consolidation to keep the General Ledger a ledger rather than a mirror of multiple sales platforms like a sort of POS mothership!
The balance between detail and summary afforded by this approach is going to most closely mirror the actual activity you’ll actually see in the bank and in the platforms.
Bookkeep breaks out the corresponding deposit detail for each connected platform to facilitate cross reconciliations.
Way too often platforms approach things by net depositing sales earnings after adjusting for all other conceivable financial activity - some of which isn’t even related to said earnings. It frankly makes sense in a way, to keep all of this somewhat indecipherable for the owner/user. Otherwise, it might be all too clear that the platform is not as cost effective as promised!
By booking all the deposit transaction details, Bookkeep allows us to actually evaluate whether or not our clients are being totalled, taxed, fee assessed, and paid correctly! Imagine that: entries you can reconcile not only to the bank feed, but to the platform itself.
Ultimately, whether it is with Bookkeep or using your own process, the requirements remain the same:
- A workflow set that captures: daily summaries. In full detail. From all sales and liability channels.
- A workflow set that bridges data gaps for: Reconciliations, liabilities tracking, assets tracking, sales trends, expenses and COGS. All while allowing for access.
- A workflow set that is: agile enough to change as service providers iterate and
- effective enough to make training and labor worthwhile.
The truth is, some of us are already using these strategies. But rapid changes in the diversity of sales channels makes sticking to this commitment ever harder, let alone pivoting there!
At the end of the day, these approaches to booking and reconciling e-commerce platform activity are really just basic bookkeeping. They’ve just been rather lost in all of our rush to innovate, automate, and systemize it all. It’s nice to see an app that has these same goals, but has embraced (rather than sacrificed) the fundamentals as a way to get there!
Want to learn more?
Join our webinar — "Everything is Ecommerce. Now What?" — Feb. 23, 2 p.m. (EST), featuring Bookkeep CEO Jason Richelson and Totally Booked founder Kelly Gonsalves. You will learn more about accounting automation, as well as get a peek into what Bookkeep is working on in 2022.