Fixing Incorrect Gross Margins
If your ecommerce business imports products from overseas, inaccurate inventory accounting can produce misleading financial statements. When supplier deposits, inventory in transit, freight, duties, or landed costs are recorded incorrectly, your gross margin is wrong. Once gross margin is wrong, the financial statements become unreliable for making business decisions.
Our ecommerce accounting team works with businesses that import inventory every day. We know where these accounting problems usually begin, and in most cases we can identify the cause quickly. Whether the issue is inventory still on the water, prepaid inventory, or the way Shopify, Amazon, or A2X is communicating with QuickBooks Online, our goal is the same: produce monthly financial statements you can rely on.
The most common reason ecommerce businesses contact Schultz & Associates is because their gross margin doesn’t make sense. Sales are growing, orders are shipping, and customers are buying, yet the monthly financial statements tell a different story. Before we make adjustments, we start with one simple question:
Does the gross margin make sense?
We Start With Gross Margin
The gross margin tells us a great deal about the accuracy of an ecommerce company’s accounting.
If it doesn’t make sense, we don’t immediately start reviewing hundreds of transactions. Instead, we begin by looking at the areas that most often create inaccurate financial statements for businesses importing inventory from overseas.
Over the years, we’ve found that the underlying problem is usually in one of a handful of places. Finding it quickly comes from understanding how ecommerce businesses purchase inventory, receive inventory, and record inventory—not simply reviewing accounting entries one transaction at a time.
The First Places We Look
Supplier Deposits
Many ecommerce businesses wire deposits to overseas manufacturers weeks or even months before inventory is ready to ship.
One of the first things we determine is whether those payments have been recorded correctly. Depending on the purchase agreement and shipping terms, they may represent a supplier deposit rather than inventory.
Recording those transactions incorrectly affects both the balance sheet and gross margin.
Goods Still on the Water
The next question is whether inventory that is still crossing the ocean belongs on the balance sheet.
The answer depends on when ownership transferred, not when the shipment arrives. Recording those goods incorrectly can distort both inventory and gross margin.
If Inventory Isn’t the Problem, We Review Your Systems
If supplier deposits and inventory in transit don’t explain the problem, the next step is reviewing how your ecommerce systems communicate with QuickBooks Online.
For many ecommerce businesses, inaccurate financial statements aren’t caused by an accounting mistake. They’re caused by information flowing incorrectly between Shopify, Amazon, A2X, and QuickBooks Online.
We’ve found that mapping errors, duplicate transactions, incorrect account assignments, and incomplete integrations can all distort gross margin. The financial statements may appear reasonable, but the underlying information is inaccurate.
Our ecommerce accounting team understands the back-end reporting available in Shopify, Amazon Seller Central, A2X, and QuickBooks Online. Because we work with these systems regularly, we know where to look for problems and how to correct them without spending weeks searching through individual transactions.
Once those systems are communicating correctly, your monthly financial statements become much more reliable.
Reliable Financial Statements Change the Conversation
Once your financial statements are accurate, the conversation changes.Instead of wondering whether the numbers are right, you can begin using them to make better business decisions.
Business owners can purchase inventory with greater confidence, understand whether pricing needs to change, monitor gross margin trends, and make decisions based on reliable financial information instead of assumptions.
For most new ecommerce clients, we can usually produce dependable monthly financial statements within the first 30 days. From that point forward, the focus shifts from correcting accounting problems to helping business owners better understand their financial results.
“We’re Making Money. So Where’s the Cash?”
One of the most common questions we hear from ecommerce business owners is:
“We’re profitable. Why doesn’t it feel like it?”
Once the financial statements are accurate, we walk through them in plain English and explain where the cash has gone.
For businesses importing inventory, profits are often tied up in supplier deposits, inventory sitting in warehouses, goods still in transit, or other working capital accounts. The business may be profitable, but those profits haven’t yet turned back into cash.
We teach our clients where the profits are hiding on the balance sheet. Understanding where your cash is going gives you greater confidence when purchasing inventory, planning for growth, and managing cash flow throughout the year.
Let’s Start With Your Gross Margin
If your gross margin doesn’t seem right and your business imports inventory from overseas, we’d be happy to learn more about your business.
Email our ecommerce accounting team to learn more about our ecommerce accounting services. We’ll reply with a few available times for a Zoom meeting to discuss your business, review your current accounting process, and determine whether we can help you produce financial statements you can rely on.