We manage bookkeeping for hundreds of DTC brands. There are 6 common accounting mistakes we see on repeat that may be costing you millions. Here is the list we shared in a recent Twitter thread.
1. Focusing on gross revenue
Planning to raise capital in 2023? You need to know your NET revenue, not just your top-line revenue.
Things like refunds, promotions, and sales tax easily bloat your gross revenue. Investors will want to see what’s coming in after all of that.
2. Miscalculating your contribution margin
Variable costs quickly eat at your profit margins.
Consider your product COGS:
- Freight-in
- Product manufacturing
- Supplies & materials
But, you should also include your other variable costs:
- Shipping-out
- Merchant/processing fees
3. Poor inventory management
Managing multichannel inventory is one of the biggest pains for brand owners.
So, understandably, brands often miscalculate inventory costs and COGS.
Check out this blog on inventory management to learn how to track your ecommerce inventory.
4. Not understanding the costs of financing
Ecommerce financing has different rules.
Merchant cash advances from companies like Shopify Capital, Clearco, Wayflyer, etc. are different from a traditional loan. You need to understand the APR and how they work for books and taxes.
You can use this free ecommerce APR calculator to get a better understanding of the real cost of financing.
5. Poorly managing sales tax
Let’s face it, we all hate sales taxes. It’s complex and different from state-to-state. But the penalties are costly if not managed correctly.
Many of our customers use TaxJar or Avalara to stay compliant with all the states.
6. Using a generic Chart of Accounts
A CoA is essentially the breakdown and structure of your finances. It shapes how you view and think about your finances. The one you use should be specific to ecommerce in order to give you the info you actually need.
Let's recap
Here's how to avoid losing money through accounting errors:
1. Focus on net revenue
2. Track your variable costs
3. Properly calculate inventory costs
4. Understand the cost of financing
5. Simplify sales tax compliance
6. Use a Chart of Accounts specific for ecommerce
About Finaloop
We are a technology company providing automated end-to-end accounting service to ecommerce businesses. Our system connects to your apps, syncs all your data and reconciles your books in real-time, replacing your bookkeeper. We offer reconciled books available 24/7, tax-saving insights, and a single place for all your financial data.
*The information provided on this website does not, and is not intended to, constitute legal advice. All information, content, and materials available on this site are for general informational purposes only. Readers are advised to consult with their attorney or accountant with any questions or concerns.*