E-commerce has been a fast-growing area for many years and lockdown (brought on by Covid-19) forced many more businesses to explore selling online to help diversify their route to market and manage risk. This brought with it opportunities but also challenges in relation to compliance and operational efficiencies, selling items multiple ways and tracking this all effectively. The answer is software and systems, but which to utilise is not always easy to identify. Ryan Pearcy, SB Digital Associate Partner shares his expertise by
identifying a few key scenarios, that normally track with growth of a business, that require different approaches from a system perspective. Please be aware that there is not a one-size-fits-all all approach and it is best to consult with an expert before making any decisions.
Getting the core right
The core of any business lies with operations and finance. As operational software tends to be where most people spend their time this tends to get the most focus with all other software selected after this is chosen. Beware, this is the wrong approach!
Although operational software is key, it is the finance element that is the lynchpin of any modern system. All key systems interact with finance, including operations, and so it is important that the right finance system is selected that meets requirements but enables flexibility.
By adopting a “Modern Enterprise Resource Planning (ERP)” approach, which is the combination of separate cloud-native software connected via secure APIs, a business can build a highly effective system that streamlines operations, enables flexibility and delivers better business insights. This plug and play approach enables the business to adapt, adding or switching out best of breed systems as they grow and evolve.
Finance systems such as Xero have become the core of these Modern ERPs, enabling the business to scale quickly as they transition through the phases explained below. They are also cost effective, enabling a business to grow to a reasonable size before having to consider switching to another system.
Single sales channel
If you sell through a single channel the system configuration can be quite simple. Channels such as Shopify have a direct integration with Xero, pulling in your sales and fees automatically and enabling quick reconciliations. Other channels may not have links and you need to be wary of just using what comes into your bank. These receipts may be net of transaction fees which need to be separated for accounting purposes. To overcome this, you can use import files, which creates an additional admin burden, or connector tools (explained below).
Multi channels – unlimited stock
As your business expands you may want to sell across multiple channels, such as eBay, Esty, Amazon etc. If you have a product that is bought or built on request then you do not need to worry about tracking inventory levels (see section below if you do), but you do now have multiple routes that income could enter your bank. This can create an admin nightmare. The way to prevent this is to use a connector system such as A2X, Dext Commerce or Saasant. These tools pull in all transactions from the various sales channels and align them with your finance system based on rules you set up. This automates the financial compliance requirements and enables you to focus on selling, reducing your compliance costs. Selecting the right tool will depend on the channels you use and it is paramount that it is set up correctly as a bad setup can create huge disruption for your financial accounting and reporting.
Multi channels – finite stock
Handling finite stock across multiple channels becomes a challenge of availability. Do you manually update each channel with a quantity you have each time something is sold, or do you keep quantities to a minimum but potentially miss out on sales? Neither is a helpful approach. To overcome this the business needs a system that can update the availability listings automatically in one channel when a sale is made in another. This is where tools such as Expandly, Unleashed or Dear come in. These tools handle inventory management from purchase to sale, updating availability and pushing transactions through to the finance system. Tools such as Unleashed also update the inventory value in Xero, enabling you to have confidence in your profits. Implementing these systems is an investment so deciding when to upgrade is critical.
When you start in e-commerce you likely handle shipping manually, but this becomes an admin burden as you grow. Inventory tools, as listed above, connect to shipping management systems or directly to providers such as Royal Mail, DPD and DHL. As an order is taken a carrier can be selected, either manually or by rules set per product and scheduled for collection to align with scheduling for packing.
Multi country sales
As you expand to sell into other countries there will be additional compliance requirements such as VAT or sales tax reporting and filing. Channels such as Amazon enable you to outsource the compliance to them directly, for a cost, but not all channels handle this. In the US there are tools such as Quaderno, and Xero themselves work with Avalara to assist with this (although you need a Xero US license), but there is less choice in the UK. Linkmybooks, a connector tool similar to A2X described above, can assist with tracking VAT across countries but does not help with filing and tracking this in your finance system can be challenging. We advise speaking to an expert to assist you with this.
These are just a few examples of systems to consider as you setup and grow your e-commerce business or arm your business. These solutions, if implemented in the right way, will save considerable amounts of time and money and allow business owners and allow employees to focus on more productive tasks.
We always advise speaking to an expert to ensure you select the right system for your needs, get this implemented correctly and have someone to reach out to for support if things change. The SB Digital team can assist so please reach out to Ryan if you have any queries by calling 0330 058 6559 or by emailing firstname.lastname@example.org.