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Inventory

E Commerce Accounting 1.0- A must read

by Sanjeev Archak Sanjeev Archak No Comments

The internet is fueling the world economy. India is no exception. An enormous population, increasing smart phone penetration and cheap data rates make India a prime market for any  e-commerce business.  A report by Business Today states that Indian e-commerce business has reached $38.5 billion. But before you start up you need to figure out a business model,buy a software platform, have a logistics partner,  have a sales & marketing plan. However, do not forget to have an accounting plan in place. A online venture is a challenge to an accountant and the founder.  E-Commerce Accounting 1.0 is the prep lesson before you hit the ground running.

Choose an E-Commerce Platform

It all starts from having a tool for handling your entire online business. A e-commerce platform will enable you to:

  1. build your website
  2. catalog your products
  3. handle orders/invoicing
  4. connect with payment gateways
  5. manage your inventory

Some of the  popular tools are Shopify, Magneto & Zoho Commerce. These tools will help you set up an online store quickly with least effort.These tools have to integrate with books of accounts for recording sales, purchase transactions. We recommend Zoho Commerce for the automatic integration with Zoho Books. This integration will save critical man hours.

Payment Gateways

A majority of your customers will pay you online. Your customers will  make payments for purchases via a payment gateway. Your bank accounts will have to be integrated with payment gateways. There are multiple payment gateways to choose from like Razor Pay, PayU & PayPal. These gateways charge anywhere between 1.5% to 5% of the payment received as gateway charges. Further, they do not transfer amounts received instantly to the bank account. There is lag of 2-3 days before amounts are credited.

Moreover, a reconciliation has  to be done between the invoices raised and cash received  from the payment gateway. Your books of accounts must automate, partly if not fully, this process.

Manage Inventory

If you hold inventory, then opt for an inventory management tool. Always remember that unsold inventory blocks cash. Therefore, an inventory tool will give you an insight into fast,slow and non moving items. It makes sense to sell only fast moving items and stock slow moving only when there is a demand.For instance, offering discounts on slow moving items can unblock cash.  Zoho Inventory allows you manage the entire process from procurement to sale seamlessly. Re-order level can be set for all items of inventory. This will prevent you from selling items that you don’t have.

Handling Product Returns, Credits & Discounts

E-commerce business thrives on discounts, cash backs & other credits. All of these have a financial impact.  Seamless integration between the e-commerce store and accounts will help. As the number of transactions rise, discounts and returns are bound to increase. An accountant must be fed this information for tracking numbers. Financial insights from books of accounts can be used to calibrate business strategies. You can read our post on retail metrics here

Managing Logistics

This is the “last mile” for an online business. The most critical part of the business is on time delivery.  Delivery deadlines have to be met and measured as a KPI. Indians still prefer Cash on Delivery, which means the delivery  partners  have to collect cash as well. Secondly, the cash has to be deposited into your bank account. Typically, there is a 2 week gap between collection & deposit of cash. In other words, your logistics partner becomes your debtor as well.

An accounting software must support integrations with logistics partners. This is a must as cash is involved.

Comply with GST Rules

In addition to the above, you must abide by GST regulations. GST in India is complicated. Different rates of taxes apply to:

  1. sales between the states
  2. sales within  the state
  3. export sales
  4. warranties
  5. additional services tied to product sales

Therefore, all the tools of your business must combine to meet this regulation. For example Shopify or Zoho Commerce must apply GST rates based on the customer location. Further, inventory tool must apply GST on warehouse transfers. Similarly,materials sent out for job work must also be addressed. As transactions increase GST filing must get automated as well.

Final Thoughts

This post is the result of handling clients in the e-commerce space. Integra Books uses and implements all the Zoho products mentioned in this post.  The benefits of technology and automation can transform your business. Let Integra Books assist your online business. Get in touch!

Retail:Financial Metrics

by Sanjeev Archak Sanjeev Archak No Comments

Anyone with a business knows that the numbers don’t lie.Retail is a hyper-competitive industry. And, I promise, your competition is already tracking and measuring retail metrics.  Retail, in particular, is data rich with constant tracking on so many levels. A lot of business owners lose out as they do not know what to look for or if they do they struggle to find a way to bring the data together. Let’s get familiar with key financial  metrics for retail businesses.

Stock turn/inventory turnover

Also known as inventory turnover, stock turn is the number of times stock is sold through or used in a given time period.Stock is a huge part of your retail operation. So if you find yourself replenishing an item frequently that item has a high turnover. If you rarely need to order it then it has a low turnover. 

To buy stock, you need cash, once you buy the stock that money is then tied up in that product until it is sold. If something has a very low turn rate it means it reduces your cashflow and essentially ties up funds on your shelves. Figuring out the worst performing items and reducing your number of lines on that basis can improve your cashflow and boost your bottom line.

Gross margin

Every business needs to make a profit in order to survive.Gross margin is defined as: total sales revenue minus the cost of goods sold, divided by the total sales revenue, expressed as a percentage.Tracking Gross Margin ensures you are actually turning a profit.Having this information available  real-time as possible means you can act fast and avoid  losses 

Cashflow

Cash is king. A business cannot survive without cash.A retail business needs cash daily to keep the show running. If you are selling seasonal products then cash management becomes crucial in the off season. Track these trends and understanding when they will occur allows you to stay ahead . A cash forecast always helps you stay on top of your cash situation.

Average Transaction Value

All retail marketing efforts are directed towards attracting new customers. A retail business needs to find ways of increasing the customer spend over a period of time. An increase in 10% spend by a customer,across product lines can be huge.Tracking the average sales value and then finding ways to improve it is vital.The key is to increase the average sale value and add to your revenue.

What metrics do you find the most useful in your business?