This post is from our friends at Bean Ninjas.
We’ve all seen the headlines on COVID-19’s impact on businesses, but what do the actual numbers say about eCommerce?
As 2020 continues to reel from a global pandemic and recession, our team surveyed eCommerce business owners in our inaugural eCommerce Recession Impact Report.
In this post, we’re sharing the top four trends we’re seeing across the industry.
1: Likelihood of Cloud Accounting Use Increased With Business Size (& Revenue)
Most respondents use Xero or Quickbooks, with Xero being a favorite among the vast majority, followed by Quickbooks and MYOB respectively.
While 95% of companies doing more than $1 million in annual revenue use one of the three tools mentioned above, we remain perplexed by those who do it manually. Manual reporting for 6- and 7-figure eCommerce companies can be problematic for a number of reasons.
We recommend utilizing cloud accounting software in the following ways to help you grow:
- Save time that could be invested elsewhere. These tools do the heavy lifting of your accounting so that you can focus on growing your business.
- Avoid inaccuracies common in manual accounting. Mistakes mean that you are making decisions that affect your business with inaccurate data. This can impact profitability, cash flow, taxes, and more.
- Pay the correct amount of taxes rather than over- or under-paying. Because you are tracking and categorizing transactions on an ongoing basis – you are provided an accurate tally of what you owe in taxes in real-time.
- Streamline inventory planning. Know with confidence how much inventory to order based on an accurate and 360° view of your finances.
- Improve your cash flow position. You can see the money coming in and out daily with reports that are easy to skim through.
While nearly half of respondents say they do their own bookkeeping, the other half outsource to either a freelancer or a third party service, like Bean Ninjas. The benefit of DIY or in-house is that your bookkeeper will have develop an intimate knowledge of the business. The downside is time, management, and resources going to accounting that could otherwise be put to better use.
Whether you bring someone on in-house or outsource to a third-party, we recommend that the business owner is well-versed in their own numbers so that they can remain vigilant against fraud.
2: An increase in eCommerce merchants conducting cash flow forecasts
Of sellers making more than $1 million in annual revenue, we found that 87% have done a cash flow report compared to 73% of respondents in general.
A cash flow statement is a snapshot of how much money is moving in and out of your business for a given time period. They usually include a beginning cash balance, cash inflows, and cash outflows.
When doing a cash flow forecast, we recommend modeling for three scenarios – best-case, worst-case and in-between. Especially during a recession, it’s important to frequently update these numbers.
In addition, cash flow forecasting can help you in a number of ways including:
- Plan for the future. Having a clear picture of your financial big picture ensures that you can make the most informed decisions possible.
- Predictotential problems. Spot inefficiencies and wasted spend in your business.
- Pay down debt. Spot a cash flow shortage far in advance versus being taken by surprise at the end of the year when you finally sit down to work on your books. Being debt-free and paying down any existing debt gives your business more options.
3: Revenue Stayed The Same or Increased For More Than Half Since March
With stay-at-home orders and a pandemic, many eCommerce businesses saw demand skyrocket. This was especially true in niches including essential items, home fitness, and office supplies (to support a work-from-home lifestyle). Fifty-seven percent of sellers still saw their revenue either increase or stay the same since March, at the onset of the pandemic.
In order to avoid any unpleasant cash flow surprises in the future, we recommend keeping current on your financial records. This includes updating cash flow forecasts, accounts receivables, and accounts payable biweekly and profit and loss and balance sheets monthly.
Staying on top of sales tax regulations also is essential, especially as states battle declining revenue due to COVID-19. For example, increased scrutiny on online retailers is one of many ways states could respond to declining sales tax revenue.
4: More Than One-Third Of Sellers Have Increased Their Marketing Budget Since The Pandemic Started
One-third of eCommerce businesses surveyed increased their marketing budgets and another one-third kept their budgets the same.
Before the pandemic, eCommerce companies prioritized email, paid social, organic social media, and SEO respectively as their marketing channels of choice.
Post-COVID-19, paid social media ads were prioritized, which cost less during pandemic lockdowns. This was the only shift in marketing channel prioritization; the popularity of each channel was otherwise unchanged.
The upshot is that brands will need to be extremely fine-tuned to their customer’s evolving buying behaviors and search intent. Providing the best in customer experience is going to be the key to success.
A few examples include:
- Messaging and promotions that take into account the customer’s need for fast and convenient shipping.
- Ensuring you are promoting the right products that are most relevant for shoppers based on evolving lifestyles.
- Regularly studying the results of your marketing efforts, and ensuring you have enough statistical relevance before pivoting your strategy.
In order for eCommerce to continue to survive, it will be essential to keep careful financial records. Not only will this protect cash flow, but it will also keep you in compliance as you navigate the future, especially when it comes to sales taxes and pandemic relief.
About the author: Wayne is a management accountant who forged a 15-year career with tech heavyweight Hewlett Packard. He is now the COO and resident eCommerce accounting expert at Bean Ninjas. When Wayne isn’t managing a global team and equipping eCommerce entrepreneurs with the financial tools they need to enjoy business success and lifestyle freedom, he’s being an everyday superhero to his wife and five children.