Your Ecommerce business dropships products directly to your customers from your suppliers. You avoid fulfilling the orders yourself and don’t hold inventory or have to deal with managing a warehouse full of products. Nevertheless, the day-to-day logistics of this type of business can create a headache that few accountants can handle. But we can.
You don’t place one big order and sell products individually. For virtually every order, you have a related purchase order. Tracking everything is more complex simply due to the sheer volume of all comings and goings.
Since you’re not in charge of fulfillment, customer service becomes a lot more challenging. You may not know if an item shipped, or if it did, how it was shipped or when the customer can expect it. With a broken feedback loop, it can be more difficult to ensure your customers are happy.
Just because you don’t hold any inventory doesn’t mean you’ve escaped some of its challenges. Instead of keeping track of what you have in stock, you now need to keep an eye on your suppliers’ inventory levels so you aren’t offering products to your customers that you can’t fulfill.
Even though you can better manage your cash flow by not taking ownership of products, it’s still a challenge juggling all the many moving parts of vendor payments, credits, sales, and returns, particularly if you’re using credit cards to help finance payments to suppliers.
You may know if you’re making a profit on what you sell, but you don’t know if that’s enough to support your overhead or the growing inventory needs for your business. You don’t know if you’re profitable overall, and you don’t know which of your products is making the most money.
You have to collect sales tax for sales in states where you have “nexus,” you have to provide vendors with tax exemption certificates, and sometimes your vendor will charge you sales tax if they have nexus in some states (like California). It makes you want to beat your head against a wall.
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