Everything you need to know about ecommerce businesses

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Everything you need to know about ecommerce businesses
Business Advisory
Partner & Head of Tax
April 14, 2021
6
minute read

A run-down of what you need to know to get your ecommerce business up and running

With more and more people starting their shopping journey online, there’s never been a better time to start an ecommerce business. But while it’s easy to set up your business, there are some key pieces of information to know in order to give yourself the best chance of success.

Liston Newton Advisory is here to help your business thrive. Get in touch with our business advisers and book a free strategy meeting, and see how we can help you get your ecommerce business up and running.

What is an ecommerce startup?

An ecommerce business is one that markets and sells its goods online.

They can take many forms:

  • Traditional retail, where the business sells their products directly to their customers.
  • Dropshipping, where the business acts as an intermediary, selling products that are manufactured by another business to their own customers.
  • Businesses that deal in digital products like ebooks, document templates, or software.

An ecommerce startup is simply one that’s in the beginning stages of getting the business up and running — it’s literally in the starting phase of the business.

So creating a new ecommerce business from scratch means that you’re creating your own ecommerce startup.

Where do ecommerce startup ideas come from?

ecommerce startup

This is the question that has plagued mankind for centuries. Where do I find my next great idea? The same goes for ecommerce startups.

Ecommerce startup ideas can come from anywhere. They can be inspirational:

  • You might take an element from your current profession, and see the potential in selling products for that professional niche.
  • You might notice a rise in a certain clothing trend, and start a dropshipping company based on that garment.

They could be calculated:

  • After reading lots of industry magazines and articles, you notice a gap in the market that your product can service.
  • You might have noticed a big ecommerce industry in another country that you notice is lacking in Australia.

Or it could simply be a passion project:

  • You might be an artist or artisan that makes and sells a certain type of product, and you want to get it out to the world.

The important thing is to keep looking. Keep doing your research. Get as much input and generate as many ideas as you can, and you’re sure to come up with your winning ecommerce startup idea.

Choosing an ecommerce business structure

At the outset of your ecommerce business, you need to choose a business structure. But be careful: the structure you choose will determine the tax obligations, earning ability, legal rights, and liability security your business will have in the future.

There are four main types of business structure in Australia:

Each one comes with its own specific pros and cons, which we’ve covered off in depth before.

Here’s a brief rundown of each type of structure, and what this means for your ecommerce startup.

Sole trader

This is the easiest business structure to start. It’s quick, easy, and cheap to set up, and easy to manage with just one person. The tax obligations are the same as your personal tax obligations, and is easy to wind up if needed.

However, there are also some downsides. This structure adheres to the rigid personal tax brackets, which means that the more profit your business makes, the more tax you need to pay. You can’t bring on partners in the business, and full liability for the business itself is placed directly on you, the owner.

Partnership

A partnership structure is ideal for those going into business with another person. Similar to a sole trader structure, they’re easy to set up and operate, with less financial burden at the outset.

A partnership has its downsides though. Similar to a sole trader, it places full liability on each of the owners. Adding or removing partners can be a difficult process. And each owner gets taxed under individual tax rates, which means there's minimal flexibility to reduce your yearly tax liabilities.

Company

A company structure allows for high growth and scaling. You’re able to take on multiple employees, the business’ liability gets absorbed by the company structure, and you can take advantage of competitive capped tax rates.

However, a company structure involves much higher setup costs, and requires strict ongoing management. This means a loss of personal control of the business, along with rigid tax and financial reporting obligations each year.

Trust

A common trust structure is the family trust. This suits ecommerce business owners that want to create a vehicle to distribute their business income to their family in a tax-effective way. Like a company structure, it also provides strong asset protection through limited liability by implementing a corporate trustee.

However, a trust structure comes with higher ongoing management costs. It’s difficult to add additional shareholders, and it’s not set up to work effectively at a large scale.

It’s always best to get strong advice when starting a business. Your financial adviser can walk you through the different structures available to you, and help you decide on the structure that best suits your future plans.

Financial tools for ecommerce businesses

Finding the right financial tools will enable you to automate your business processes right from the start, and save you untold admin hours down the road.

But choosing your financial tools can be tricky. There are so many out there, that you need to put in the time to find the ones with the functionalities you need.

So start with the basics.

Xero

Xero is a cloud-based accounting platform that simplifies your finances. You can reconcile your business transactions, see financial statements, track your expenses, and see your business’ financial information in real-time. It also syncs easily with a variety of other business software, making it a powerful way to automate your processes.

HubDoc

HubDoc is a repository for all your bills and financial statements. This platform works automatically, importing invoices, bills, and statements from different platforms into one central location. It’s an easy way to keep track of your financial obligations.

Bill.com

Bill.com is a bill payment solution that you can integrate with your Xero account. It allows you to enter, monitor, and pay bills easily, without doubling-up on data entry.

PayPal

Every business needs to give its customers payment options, and PayPal is one of the world’s largest and most-trusted payment gateways.

Stripe

Stripe is an online payment gateway that handles credit card payments, and payment alternatives like Apply Pay, Android Pay, and Bitcoin.

Veem

Veem is a global payment gateway that streamlines—and speeds up—the process for sending and receiving international payments. As an ecommerce startup with aspirations to grow, this is a great financial tool to have on board.

Bankfeeds

Bankfeeds allows you to automatically import your Shopify transactions to your Xero account. Instead of spending time tracking your monthly reconciliations, this program does it all for you.

Pennypipe

Pennypipe offers a similar service to Bankfeeds, but for PayPal transactions.

What is an ecommerce platform?

An ecommerce platform is software that your ecommerce startup uses that enables your customers to buy your products. So choosing the right ecommerce platform will depend on what you’re selling, where your customers are, how much control you want, and your plans for the future.

Some common ecommerce platforms are:

  • Shopify
  • Salesforce
  • Netsuite
  • Wix
  • Squarespace

How to choose the right ecommerce platform for your needs

  • Calculate all the costs involved. So not just subscription or membership fees, but also any extra storage fees, integration fees, and similar.
  • Do in-depth research. This platform is what’s going to make it easy for customers to buy your products, so make sure it works properly. Speak to sales reps. Quiz other business owners. Work out what you want to achieve, and then match this against each platforms’ capabilities.
  • Is it user-friendly? Before you commit to using the platform, ensure you actually enjoy using it. Give it a trial run, or watch walk-through videos, to see how it works.
  • Ensure your web hosting company is up to the task. As your business grows you’re going to be handling a lot of traffic, so make sure your hosting company is there for you. At a minimum, they need to provide data backup, security protection, and responsive support, in order to make sure your data needs are serviced.

How to grow an ecommerce startup

When you start your ecommerce business, it might seem like a matter of creating the products, putting them online, and waiting for the customers to show up.

But an ecommerce startup is like any business: you need to put the right groundwork in place in order to grow.

  • Start with the basics. Ensure you’ve got an attractive-looking website, that’s easy to use and user-friendly.
  • Spend some time and money getting your SEO right. Make sure your customers can find you, and invest in advertising that gets your name and product out there.
  • Set clear KPIs. Give your business clear goals to achieve, and targets to hit, so you can track and monitor your progress.
  • Work out where to reduce your costs. Business overheads like rent, insurance, storage, and similar are costs that eat into your profit. Working out where you can reduce these will mean more money in the bank at the end of the month. Negotiating better prices with your suppliers, or changing suppliers altogether, may improve profit margins on your sales.
  • Raise your prices. Experimenting with product prices can be daunting, but you might see that even a 5% increase in your prices can have a big impact on your income.
  • Explore new product lines and markets. You might start off selling one product, but it doesn’t mean you’re fixed to that. Expanding your product line and exploring new markets offers huge room for growth.

The final word

When getting an ecommerce startup off the ground, it’s important to make sure you’ve got a plan in place. Give your business every opportunity to succeed, by:

  • Choosing the right business structure;
  • Automating your processes with strong financial tools;
  • Choosing the ecommerce platform that works best for your needs; and
  • Understanding how to achieve growth.

Engaging the services of an experienced business adviser can help give you the structure, guidance, and support to manage your ecommerce startup the way you want to. They can help you plan for the future, and ask the tough questions that keep you on track.

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