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Posted on April 21, 2023 at 2:05 PM
Written by Plumb
Ecommerce companies have experienced rapid growth in recent years, which is why it's important to be prepared for financial audits. Financial audits can provide insights into the company's financial health and help detect any discrepancies in the financial records.
Here are some ways ecommerce companies can prepare for a financial audit:
For e-commerce companies, areas that are often overlooked and can cause headaches and trouble down the road, are reconciling your Shopify, Venmo, Zelle, Amazon, eBay, and PayPal accounts. If you don’t know how to do this correctly, it is well worth your time and your money to hire an expert to do so for you. We often see transactions hiding in certain clearing accounts in the balance sheet, which means non-accurate financials are being provided at year end. This has major tax implications. Another common issue is the incorrect implementation of sales tax systems. It’s very important to ensure that your sales tax system is working properly to ensure no issues arise during audit.
We’ve said it before, and we’ll say it again: with e-commerce companies, permissions are EVERYTHING. You’ll want to have a trained expert review all your ERPs to set strict parameters around who is allowed to do what. We’ve seen some “creative” ways that people have used their access improperly. You want to get ahead of this and set-up the appropriate processes and permissions.
In the e-commerce arena, the biggest tax laws that we see causing trouble is sales tax and nexus law and payroll. You must ensure you are compliant when hiring outside your headquartered state, and you need to work with a consultant to establish your proper sales tax compliance.
This tip applies to some e-commerce as well as some Manufacturing & Distribution businesses. I always tell my clients not to hold on to inventory they won’t sell, and to make sure to have a system in place to do an inventory count. You do not need a fancy barcode scanner if that’s something that’s out of the budget. Get out of your seat and go do a manual count. You want to make sure you are managing shrink while also cleaning out old inventory that’s taking a) shelf space, and b) that’s actually a write off sitting there on your shelf! If you don’t do it, the auditor will 100% make you do a full count and ask these questions.
Ecommerce companies should be proactive in preparing for financial audits. By organizing financial records and reconciling accounts correctly, reviewing internal controls and setting proper permissions, ensuring compliance with tax laws, maintaining accurate inventory records, preparing for questions, and engaging an experienced auditor, e-commerce companies can ensure a successful financial audit. And when in doubt, seek the assistance of experienced accounting professionals to help guide you through the process seamlessly.
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