There has been a recent surge in online sellers and marketplaces over the last 12 months as businesses attempt to deal with the restrictions placed on everyday life by the Covid-19 pandemic.
Within the first four months of lockdown, more than 85,000 businesses launched online stores or joined online marketplaces.
Since then, many more have sprung up, as both new entrepreneurs enter the market and established businesses build successful e-commerce offerings.
It is no surprise that according to researchers, Statista, the United Kingdom is now the third-largest e-commerce market in the world.
Of course, the development of online sales is not simply a product of the pandemic. Consumer behaviour has been evolving for years due to UK customers enjoying the convenience of online shopping.
Setting up a new online sales business can be very exciting, but it is not without its challenges.
There are certain steps that all businesses, whether new entrepreneurs or long-established companies, will need to consider when launching their new online enterprise.
Online business models
Owners need to think about the type of online business they intend to run. There are several variations to consider, which could affect how the business is launched.
Business to consumer (B2C) – B2C businesses sell to their end-user. The B2C model is perhaps the most common business model.
The decision-making process for a B2C purchase is much shorter than a business-to-business purchase, especially for items that have a lower value and the sales process is often far simpler.
B2C doesn’t only include products, but digital services as well. This is a fast-growing area of online sales.
There is a range of ways to conduct B2C sales like mobile apps, online marketplaces, native advertising and marketing directly to customers via social media sites.
Business to business (B2B) – In a B2B business model, a business sells its product or service to another business. Sometimes the buyer is the end-user, but often the buyer resells to the consumer.
B2B transactions generally have a longer sales cycle, but higher-order value and more recurring purchases.
Consumer to business (C2B) – C2B allows an individual to sell goods and services to companies. This could include a website that allows consumers to outline services they need and have businesses bid for the opportunity.
This business model also includes affiliate marketing services, where a company pays a publisher or affiliate to promote a service directly to customers via relevant websites.
Often the C2B approach gives consumers the power to name their price or have businesses directly compete to meet their needs.
Consumer to consumer (C2C) – C2C businesses include many existing online marketplaces, such as eBay or Gumtree, that connects consumers to exchange goods and services.
These types of businesses typically make their money by charging transaction or listing fees, as well as by advertising on their site.
E-commerce platforms
There are a wide variety of e-commerce platforms that online sellers can use, including:
- 3D Cart
- AliExpress
- Amazon
- BigCommerce
- Depop
- eBay
- Etsy
- Magento
- Not on the highstreet
- PrestaShop
- Shopify
- Volusion
- Wish
Businesses need to consider how goods and services will be marketed and delivered to their customers via these platforms. Once again, there are a number of different methods to consider.
Direct to consumer
This form of delivery relies on sellers providing goods or services directly to their clients. It cuts out marketplaces or other websites that act as the middleman to connect sellers with potential consumers.
This model could include businesses that have a dedicated sales platform or online shop. Not only this, it could include businesses that provide services directly via their website or social media and the various features on these solutions.
White label
White labelling simply refers to applying a name or brand to a generic product purchased from an existing distributor.
Similarly, private labelling is where a retailer hires a manufacturer to create a unique product for them to sell exclusively.
These forms of delivery help business to keep their initial investment small, as they do not need to factor in the cost of design or manufacturer, as there are essentially outsourced to another party.
Often products sold this way are sold under a license or sometimes even a franchise, which may incur additional fees.
Wholesaling
In a wholesaling approach, a retailer offers its product in bulk at a discount. Wholesaling is traditionally a B2B practice, but many retailers have offered it to budget-conscious consumers in a B2C context.
Dropshipping
This is one of the fast-growing forms of e-commerce, especially for new starters. Dropshippers market and sell items fulfilled by a third-party supplier, such as AliExpress Doba, Printful and many others.
The role of the dropshipper is to act as the middleman by connecting buyers to manufacturers, often through well-known online marketplaces like eBay or Amazon.
Easy-to-use tools allow sellers to integrate inventory from suppliers around the world for their various storefronts.
By buying goods at wholesale prices and selling them at retail, businesses can make a profit by fulfilling orders for customers.
As goods are often sent directly from suppliers to fulfilment warehouses, it means that owners do not have to lease or buy expensive premises and can operate with minimal overheads.
Subscription service
With e-commerce evolving, businesses are going beyond periodicals and wine of the month clubs and today, virtually every industry has seen the arrival of subscription services to bring convenience and savings to customers.
Payment methods
Perhaps the most important part of operating a business is getting paid. Businesses are best to employ multiple methods for getting paid that suits their customers, including:
- PayPal
- GooglePay
- ApplePay
- Buy Now, Pay Later services, like Klarna
- Traditional credit and debit card services, like visa
- Bacs
Consumers like to have a choice of payment methods to suit their needs, so this is an area that is worth researching further.
If you are dealing with B2B sales, to receive money from your customers, you may need to provide them with an invoice.
Legally, an invoice must contain the following details:
- Full company name and registered office address
- Invoice date
- A description of the goods or services
- The total amount to be paid
It is also good practice to include:
- The company’s registration number
- Trading address (if different from registered office address)
- Invoice number, which should be sequential if possible
- The name and address of the customer
There is then further information to include if you are VAT registered. There are a variety of digital applications that can assist you with this process, which integrate with cloud accounting platforms.
Bookkeeping and accounting for online sellers
You are expected to maintain appropriate accounting records for the company. Whilst there is no set requirement as to how you maintain the records, HM Revenue & Customs requests that the records are adequate for the size and complexity of the business.
As a minimum, you ought to maintain:
- Copies of sales invoices sent to your customers
- Purchase invoices for any supplier costs you incur
- Expenses claim forms for items reclaimed from the business by any directors or employees (including details of journeys for any mileage claims)
- Petty cash expense receipts
- Bank account statements for the company account
- Statements for any company credit cards
- Copies of any loan/finance/hire purchase/credit accounts the company has with any third parties
The benefits of online accounting
As the e-commerce industry has grown, so has the demand for effective bookkeeping and accounting solutions that integrate into the innovative platforms that many sellers use to meet these recordkeeping requirements.
This has led to many innovations to not only help keep sellers compliant but also ensure that they have the real-time information they need to make key decisions.
Taking advantage of accounting software like QuickBooks and Xero’s dedicated online e-commerce solutions is certainly one way that many new businesses are achieving this.
Cloud-based options can help you get a handle on your finances and allow you to fully digitise your bookkeeping practices. This way you will not have to keep physical receipts, invoices, or sales records.
These platforms offer:
- Easy Integration– These platforms and connected third party apps allow you to easily integrate your existing inventory systems and sales records to provide real-time, precise financial reports.
- Real-time collaboration– Just like you can sell to anyone in the world, these solutions allow sellers to work in real-time with their accountant wherever they are located and at any time.
- Automatic Updates– Delivered via cloud-based solutions, this method means that you can have instant access to the information you require, which will be continually updated without any input from you or your accountant – thanks to the automation that they offer.
How we can help
We have helped many clients set up new online businesses or expand their existing operations to incorporate online sales – helping new owners to navigate the complexities and opportunities they face when launching their company.
To find out how we can assist you with online sales and the accounting systems to support your new operations, please contact our Accounts Specialist, Jacqueline Walmsley, on jacqueline.walmsley@benson-wood.co.uk or at 01236 756161
