The fatal four barriers to progress for e-commerce firms
Over 15 years, I’ve received great satisfaction from helping many e-commerce businesses to cut their operating costs and increase profits.
However, I’ve noticed that the same four issues keep coming up for clients, whether they’re start-ups or well established. In this post, I want to look at these issues, which can stop a business from making that break-through leap in its bottom line.
I also believe the difference between a successful business and a great one is how they turn negatives into positives, so I’ll look at what opportunities are opened up by solving the four “problems”.
How to calculate profit accurately
Forget turnover; profit is the measurable that tells you how successful your business is. But if you can’t measure it, how do you know which areas of your business are making money and which aren’t? How can you make strategic decisions?
You would think that profit was easy to measure if you knew your cost of sales and expenses, and maybe it was in the days when a shopkeeper bought X number of units from a wholesaler and sold Y units to customers. But things are not so clear in the virtual marketplace and you’re not always in a position to compare like for like.
How to account for VAT when selling products to other EU countries
E-commerce makes international trade more accessible but dealing with different tax regimes can be problematic.
Even within the EU, VAT rates vary, so how do you calculate what to give the UK Government if a product you sold in Germany is being stored there when that country’s VAT rate is 19%?
If you can solve issues like this, you can take full advantage of export markets in the happy knowledge that you are legally compliant.
Constant cash flow issues: how to manage cash
When sales are strong, it’s always tempting to use your cash surplus to buy more stock, but you risk going out of business very easily if you haven’t factored in monthly operating costs, large bills due or the fact that the summer has turned cold and you can’t shift your best-selling line of summer dresses any more.
Keeping on top of cash flow is one area where I really help clients. Once we work out how much is needed in the business account to cover monthly invoices and payroll, we can leverage the remainder for maximum benefit.
This might be to increase stock, invest or reduce interest payments on a long term loan. You can also negotiate early payment discounts from suppliers, anything up to 2-2.5%.
I saved one client 0.75% of the costs of sales over a year. For a £6.5 million a year business, that was an annual saving of £48.5 thousand.
How to extract money from the business more profitably
There are three ways to extract money from a Ltd company: wages, dividends and pension contributions.
If your outgoings are modest, you can meet daily needs through a dividend, which is exempt from NI contributions.
You may want to get the most from Government tax relief by maximising your annual pension contributions (currently £40,000). And if your pension contributions are covered by your company, that lowers your corporation tax bill by reducing profits.
Taking a low salary can also be tax efficient as the first £11500 is tax free. You’re qualifying for your state pension.
Every circumstance is unique, so you should talk to an accountant who knows your business and your personal situation and understands the tax consequences.
For each of these problems, I offer my clients the benefit of my experience practising as a business accountant, specialising in e-commerce. There are very few problems I haven’t seen before.
And as I’ve seen these same problems time after time, I’ve developed a self-implementation template to help clients see their way through each of them, though I’m always happy to do it for them if they prefer.
I hope this provides an insight into how an e-commerce specialist accountant can help you solve your problems, and that you’re not on your own.
And I hope I’ve encouraged you to seek out the opportunities waiting after you fix these problems. Don’t forget you’re an entrepreneur.
At Boost Accounting, we offer a range of service levels along with workshops and online courses tailored to suit the needs of e-commerce businesses and transform you as an entrepreneur to an accountapreneur who can build solid foundation in place from outset and be comfortable and confident in making your own key financial decisions.
BOOK NOW for your free diagnostic session with me and receive a 5-point actionable plan to boost your profit.