How to Navigate E-commerce Tax Challenges with Tom Mercer, Director @ Bean Ninjas - 97

In this episode of the D2Z podcast, Brandon Amoroso kicks off a great conversation with Tom Mercer, a partner and director at Bean Ninjas, to shed light on the intricate financial landscape of e-commerce. As an expert in e-commerce bookkeeping and financial reporting, Tom brings a wealth of experience and insights to the table, offering valuable guidance to online businesses striving for financial clarity and success. From his background as a chartered accountant to his journey with Bean Ninjas, Tom shares the pivotal moments that led him to specialize in supporting digital nomads and online entrepreneurs.

Throughout the discussion, Brandon and Tom delve deep into the nuances of U.S. sales tax compliance, uncovering the complexities and challenges that e-commerce businesses face in navigating tax regulations across different states. They explore the importance of preemptive tax planning and the role of innovative software solutions in automating sales tax calculations and payments. Additionally, Tom provides recommendations for tax software tailored to the needs of e-commerce merchants, emphasizing the significance of choosing the right tools for streamlined financial management.

Come along with Brandon and Tom as we dive deep into the world of e-commerce finance! Get ready to uncover the ins and outs of managing finances in the online business world and gain actionable insights to help you thrive. 

Timestamps

👨‍💼 Introduction of Tom Mercer and Bean Ninjas (00:00:01)

💰 Understanding the Importance of E-commerce Finance (00:00:56)

📊 Challenges in U.S. Sales Tax Compliance (00:03:18)

💡 Solutions for Managing Sales Tax (00:06:02)

🛠️ Recommendations for Tax Software (00:08:38)

🌐 Exploring Different E-commerce Platforms (00:09:36)

💼 Tax Implications for Digital Nomads and Online Agencies (00:10:23)

🎯 Client Demographics and Business Focus of Bean Ninjas (00:11:38)

🚀 Tom's Journey into E-commerce Finance and Remote Work (00:12:45)

🏠 Remote work advantages and challenges (00:14:45)

🔌 Impact of technology on tax compliance (00:17:07)

🔄 Transitioning from in-house to outsourcing accounting (00:19:38)

💼 Hiring strategies for remote teams (00:22:12)

⏳ Importance of early tax planning and seeking professional help (00:25:01)

Tom Mercer:

LinkedIn - https://www.linkedin.com/in/tomnmercer/

Bean Ninjas - https://beanninjas.com/

Brandon Amoroso:

LinkedIn - https://www.linkedin.com/in/brandonamoroso/

Web - https://brandonamoroso.com/

Instagram - https://www.instagram.com/bamoroso11/

X - https://twitter.com/AmorosoBrandon

Transcript

Speaker 1: 0:02

I'm Brandon Amoroso and this is the D2Z podcast Building and growing your business from a Gen Z perspective. Hey, everyone, thanks for tuning in to D2Z, a podcast about using your Gen Z mindset to create your business. I'm Gen Z entrepreneur Brandon Amoroso, founder and president of Retentionless Service Agency. A lecturer Today I'm talking with Tom Mercer, who's a partner and director at Beaming Ninjas, which provides bookkeeping, financial reporting and training for six-figure plus e-commerce and agency businesses.

Speaker 1: 0:34

Thanks for coming on the show today, tom, I'm excited to chat with you. We haven't had somebody on this side of the e-commerce equation on the show yet, so it should be good to dive in here.

Speaker 2: 0:46

Yeah, thanks very much for having me, brandon. I'm excited to be here. So, yeah, and I think e-commerce business owner, it's very important that they do understand the side of the business. So being the first person here to talk about this and highlight the important points is also very beneficial for your followers, I'm sure. So a bit of background about me. I basically am a chartered accountant in the UK.

Speaker 2: 1:17

I joined Beaming Ninjas about eight years ago and we were then just like a remote account to see practice, a remote bookkeeping firm, and we specialised in e-commerce just before COVID, so the timing was really perfect. It sounds a bit bad to say in that way, but it worked out really well for us Because we saw that niche available. We basically took on some clients out of e-commerce and we saw the gaps in what bookkeepers could provide for them, and we basically jumped in and filled those gaps with expertise that we do in-house and also reaching out to our partners as well. So we managed to basically put together a complete online solution. We mainly work with digital nomads and online entrepreneurs who are very tech-savvy, and that made it the adoption of accounting and spin tech for their company really easy, because people just pick it up and it's around the age of 30 to 50. They just seem to have a grasp of that knowledge, sitting in this niche of e-commerce already.

Speaker 1: 2:33

Yeah, I've found or seen at least multiple deals fall through because a brand was in due diligence with a current company and they weren't properly calculating and remitting sales tax, and then you could end up with sometimes even millions of dollars worth of unaccounted for liability because of the fact that you weren't doing that. I guess could you talk a little bit about just the background of the US sales tax sort of framework and why it's so complicated and why you just don't set up a Shopify storefront and everything's handled for you automatically.

Speaker 1: 3:12

I think it would be great to set the stage for those that are listening, who maybe just started their business or are thinking about starting one. Why does it not just happen because taxes are being calculated and check out with Shopify? What's the gap? What's currently missing? Yeah, sure.

Speaker 2: 3:30

I mean, it's something I see quite a lot and it's not about the. It's generally the mindset of an e-commerce seller that is to sell, sell, sell. But yeah, unfortunately with that comes taxes. It's a good thing to pay taxes because it means you're making money, but it's not good if you don't get set up and start counting bit straight away. In my kind of wise words for this is it's better to preempt If you leave the sales taxes, they will come back to you at some point and get hold of you for the history of it. So you know, you might feel like two years has gone by and there's been no.

Speaker 2: 4:08

you know no communication from you know, irs or anything. But when they do get hold of you they will ask for that back tax and there's a lot of money to go out the door straight away. In terms of USA sales tax, it's very complicated because each state has their own registration rules. So some based the registration on, you know, like, volume of sales, like dollar value, others based it on number of sales and then some, you know, based on a combination of the two. So each state has its own rules. And then, you know, some states as well have it where it depends where the buyer is. So it's really complicated actually to manage USA taxes. And then, once you've actually registered for the sales tax, again it's, you know, there's a lot of states that you need to register the tax in and pay. We admit that to the authorities.

Speaker 2: 5:04

So, yeah, it can be, very difficult to manage it, especially if you're not finance minded, which may not be a lot of. The strong points of an e-commerce seller is mainly advertising. I find they're very good at advertising and maybe source products side of things, and then the kind of admin is something that they're not so strong on. But it's funny you mentioned you've seen companies fall through when they're trying to sell and that's what I always like to kind of sell in a house.

Speaker 2: 5:34

So when you sell a house, you've had these annoying little things that have been pestering you for years and years and years and you just don't fix them. They're just kind of in the back of your mind. But when you kind of come to sell the house, you start to get everything fixed and get it in order. So when you actually have a nice, you know, fully running house that you're happy with, you know you're selling it. So you know with e-commerce it's the same. Just get always think of you know, if I sell it, if I want to sell the business tomorrow, how do I get this business ready and then you can live with a nice, clean, you know, easy to run business, rather than handing a nice, clean, easy to run business over to someone else while you struggle with it for a few years.

Speaker 1: 6:13

Got it If you leave that to, I guess, the US government and financial institutions to make things overly complex. And what now is always confused me is like where you do or don't need to register for sales tax to because you are just selling online, how do you go about assessing? You know where you actually have to register your business because you know you're technically shipping into potentially all 50 states or all 48 to US states.

Speaker 2: 6:47

Yeah. So it's a good thing. There is software available to help you. So generally really an unsophomised tax jar and there's a few other tax code and things like that that you can plug right into your shop by an Amazon store and basically they do two things. So the first thing is they will, you know, assess your sales right up until you have to register and then they'll kind of alert you that you need to register in this state and this state. They won't automatically register you, but they will provide a list of, you know, recommended accountants on the ground that can register you in that particular state. And then, once you've registered, it is very simple. Basically, the software's tax jar will automatically calculate the sales tax due per state, based on what's coming from your Amazon and Shopify store. So you can't get much easier than that. You know, 10 years ago you would have been struggling a lot, but these days there's this great solution.

Speaker 2: 7:49

And all you'll receive, kind of each month or each quarter, depending, you know, on the state that you registered in, you will receive like an email just saying you need to pay X, x amount to this state and another bill for another state. So it really automates the process and takes that worry out the back of your mind that you know you don't have to calculate that or you don't have to pay an accountant a lot of money to do it for you Because it is mentioned you could be remitting enough to 50 states. So if, for example, you need 50 separate countants in each state to do those sales tax for you, that's a lot of work and a lot of money going out the door.

Speaker 1: 8:31

Got it. Yeah, the, the tax software sort of landscape as well is relatively confusing with how many different players there are. Are you typically Recommending like one solution?

Speaker 2: 8:45

over another.

Speaker 1: 8:46

Or how do you, how do you go about that with merchants?

Speaker 2: 8:49

Yeah, yeah, there's definitely a lot of players out there and it can be a bit daunting when you start to, you know, step into the field of which one to choose, because you don't want to pick the wrong one. What we normally go with tax jar, that's one we we use about clients and recommend. That's just because of ease of use. I think it's the easiest one to set up and get rolling. So, like everything, all the software is we kind of pick within being ninjas is Software is that we, we we understand as an accountant, but we also Make sure it's the easiest software to understand for people who aren't financially minded and who you don't want to know but do just want to make sure that they are on the right side for the regulations. So, yeah, tax Trace along your recommend, but yeah, it also depends on the software that you use. The tax just really good for Shopify and Amazon users. And then there's other solutions. If you're, maybe we'll come less and things like that as well.

Speaker 1: 9:48

Yeah, when it comes to Shopify plus in their partnership with Avolera. Are your merchants to be using Avolera? Or or or other alternatives there.

Speaker 2: 10:02

I'm not using Avolera. We still get. We still kind of plug it into tax jar. That's yeah. Yeah, I don't want to say anything bad about Avolera, but I feel the support from tax jar is a lot better, a lot quicker. So, yeah, I always kind of sit with that, that, that integration for both, because you can, it's my, especially if you, you know, on the channel you've got Shopify and got Amazon as well, it's really good to plug in all of these different channels that you have for your sales.

Speaker 1: 10:35

Got it. That makes sense, and so when you're onboarding a merchant, I guess one question would be because you mentioned you know you work with merchants and you work with agencies what is the? You know what are the tax implications for an agency.

Speaker 2: 10:52

So Like an online agent side, like a certain courses and things like that.

Speaker 1: 10:57

Yeah.

Speaker 2: 10:59

Yeah, I Would say the vote that they're very similar it's based on. The sales limits are still the same into each state. The tax is going to be slightly different. I'm not a USA specialist so you know I won't be able to kind of dive into that, but it might. Services and products of a different into Europe at least they depend on you know where the seller is or where the Provider is. So that's the difference in on the European side. Anyway, in the USA I couldn't say the difference, but I would imagine that the rules are pretty much the same in terms of the volume of transactions and the overall turnover per state that you need to register in.

Speaker 1: 11:42

Got it Okay, so what are the types of businesses that you're typically working?

Speaker 2: 11:49

on. Yeah, so type types of businesses that we generally work with Normally digital nomads, people who you know work from their own location or they move around Quite a bit. We have people that travel to all sorts of places, which is really good fun to kind of follow the clients. So we don't generally have any businesses that kind of. You know this, the standard brick and mortar business like in a plumber's or shops or things like that. They were all online digital agencies, e-commerce businesses. So e-commerce makes up probably about 80% of our clients and the age group I'd say is kind of as I mentioned, is that 25 to 40 kind of age group when people are using that tech to help support the sales and yeah, yeah, so yeah, basically People like ourselves.

Speaker 2: 12:38

We all will work independent as well, and we all kind of move around as we work. So we kind of like to share that lifestyle with with our clients.

Speaker 1: 12:48

And what makes you want to start the business versus like go out on your own and have your own venture versus.

Speaker 2: 12:56

Yeah so mine was a bit of a long story, yeah, so what basically got me into online is I lived in Mexico City in 2010. So I was there, for I was in Cancun one year and one year in Mexico City. And when I moved to Mexico City, it was kind of one job after another and there's like lots of excuses not to pay me. You know, working for local companies because I was a foreigner, so a lot of things they knew when I started the job and then, you know, it didn't come to me to let us pay, you know. So basically there's a lot of time.

Speaker 2: 13:28

I've said, obviously, about three or four jobs and, you know, didn't get paid for many of them, so I kind of had to return back home to UK at that time and then I was like I was determined then I was going to make my own money and so I didn't have to depend on, you know, the local people so I could go live anywhere in the world and have my own money, have my own income and be happy with what I'm doing.

Speaker 2: 13:53

So I kind of thought what's one thing that's the same everywhere? And it was numbers. So I that's where the kind of the dive into accountants he started and also I started. After you know what a couple of years of experience, I started pulling in a few private clients, kind of just to test the online world. And then there's lucky I crossed paths with being, just just over eight years ago now, who were similarly aligned and they started in Australia and they kind of organically grown. It wasn't really a plan for them to grow, you know, outside of Australia, I don't think at the time, but they took on a few UK clients and that's kind of where I slid into the business with them and I think there's about three or four of us at the time, and then we've grown over the last, over the last years, to about 40 to 53 members in total.

Speaker 1: 14:45

What's you know what's been the biggest surprises and what have you like? What have you been surprised by in a positive?

Speaker 2: 14:51

way, or have you been surprised by in?

Speaker 1: 14:52

a negative way, you know, going out and starting your own venture.

Speaker 2: 14:56

So I think the great thing of it is the freedom it gives you. I just love that. We can just, you know, travel and take a laptop with us. So I go to Spain for three months every year just to just to change scenery. British weather isn't the nicest to hang around in all year long. So yeah, it's really good that we have that and we also you know our team members have that option as well. We like to extend out to our team members to go live, move around as they wish. So that's one of the big positives of it.

Speaker 2: 15:29

And I guess the downside is being remote. It does have that kind of solitude with it a little bit. You know you don't have that talk in a water cooler, there's chats and you know a bit of banter with the team that are there in the office with you. So I mean, I have my dog but he doesn't. It's a bit of a one way conversation. So, luckily, kind of I break the days off with going to CrossFit or going to a gym or something like that, just to kind of get a social moment in the day. So yeah, I'd say I've been working remotely for seven, seven, eight years now and I've kind of gotten to that rhythm of it. I think, yeah, it would be hard for me to return to, you know, general office day life. I think it would just be so difficult to sit in traffic for an hour or two a day.

Speaker 1: 16:19

Yes, I definitely empathize with the traffic side of things and you know when we started the business pretty much during COVID. So it really was, you know, remote first from the get go. But you know, and my new venture is definitely going with like a hybrid approach, because I think if you're starting a company from the ground up, it can be difficult to not have that interaction and that ability to collaborate back and forth whenever you, whenever you need or you know to pull somebody into a room.

Speaker 2: 16:51

So there's, definitely definitely yeah exactly I'm holding new team members can be a little more challenging, I think, than it would be if we had an office. I think the equipment that we have is quite good, so we bring in the right people and that does help. But yeah, having an office and being able just to walk over, as you said, is a lot easier. To have that going back and forth conversations and for them to ask for help when they need it.

Speaker 1: 17:17

Yeah, how about back to the tax side of things. What's the one thing that you see trip? Up most e-commerce businesses that you know. If they're listening to this, they should be checking on their end ASAP.

Speaker 2: 17:30

Yeah, so I guess the one. The main thing is it's not directly tax, but it does. Impact is a lot of standard accountants. They kind of just they used to. You know one bank account or two bank accounts and the standard way of business. So this basically costs e-commerce businesses a lot of money. So what they have is you know you might have with PayPal we're sorry, with Shopify, you have PayPal methods through Stripe, paypal. You know all these different payment methods. So the one thing that I see impact tax the most is an account might reconcile all of your sales when they hit PayPal and Stripe and then you know when it transfers the money to the bank.

Speaker 2: 18:14

A lot of I still haven't happened countless times now and they basically, when that one payout comes across, they count that as revenue as well. So, in effect, sometimes e-commerce businesses are paying double tax because their revenue has been counted twice in their books. So, yeah, it's more common in the sound. You think it's something that's fairly easy to spot, but it is a big trip for that, we see, and that's where we kind of come in and and that's where we bring in as much automation as possible with us. The more automation and, you know, the less human involvement, the less chance there is of ever. And then what we have is I mentioned our team in the amazing team that do a review each month on the zero files.

Speaker 2: 19:03

We work only with zero. I'm not sure if you've heard of them before, but it's basically an online accounting software and that's like essential, pivotal section. So, yeah, every month there's a review on those just to make sure things like that aren't happening. And that is Back to Amazon and Shopify. I'm seeing I've got enough on your taxes because of Got it okay.

Speaker 1: 19:29

And then One other follow-up question. I have to that, if that's like the one thing that they you know should be looking out for, when do you Do it? When do you recommend? That they make the jump from doing things you know in house or you know just trying to figure it out themselves, versus transitioning to you know partner like yourself.

Speaker 2: 19:50

Yeah. So I mean, it depends on everyone's particular level of, you know, accounting knowledge. So you know, if you're someone that has a little bit of a background and you might be able to, you know, start the first couple of months. What I actually recommends to people is is is, for example, person I'm sure I've a e-commerce firms offer? The same thing is we offer like a setup of zero and basically that's the integration of all your softwares and Shopify and Amazon into zero as well, using a to X, and then Included in that is some training. So that's kind of like a cheap option because it's like a one-off service and then as part of that you get your training on how to manage your books yourself. You know, do the rep insidiation, make sure the Amazon and Shopify sales being accounted for, and even at that early stage you might not need the tax just setting up, but we can integrate it for you. So, yeah, if sales don't take off straight away, that's a very good option. So I wouldn't always recommend just leaving it a couple of years or a couple of months and then try to set it up and then you have to kind of backdate everything, because then you don't have the knowledge of what that transaction is for.

Speaker 2: 21:06

It's easy to forget what you purchased. If you're trying to do it a year down the line and documents get lost, it's harder to find them. And then you know, when you start to get into a point where you grow any sales and maybe just a little bit before you start to feel overloaded because there's a especially e-commerce entrepreneur you try to take on, you know all the hats of your business. You know you start controlling your accounting or your marketing. You try to wear all those hats. So I'd say probably, because it's probably your weakest point, I would outsource accounting when you start to feel your time is getting squeezed so you can really focus that on the marketing and the other items of your business. Yeah, and there's options out there, as I mentioned. You can go for full service, like Beaninch, that take care of everything, or you can look for VA's, which they can be good. It just means you have to vet them and you know they're not always what they make themselves have to be at the start.

Speaker 1: 22:10

Yes, I have tried the VA route and that has, I know, some people works really well for them They've been able to make it happen, but I haven't been able to be yet and on my end, no personal.

Speaker 2: 22:23

Yeah, it's a it's a, it's a, it's a, it's a, it's a, it's a try to find a diamond in the rough. I feel when you try to go through five and and you know like the VA moves it's you can go through, you know, three or four bad ones before you find that one that you know fits really perfectly and that works for you and your business.

Speaker 1: 22:38

Yeah, I feel like a lot of it is referral based, but then you know, why would you? There's only one person. So if you're getting a referral the good one you know that they're already being used by somebody, so then you end up like splitting time and then people get too busy. My preference has always just been to hire right out of college and have them be based in the US and they can sort of shadow and learn but also, you know, pick up and do a bunch of different things and that'll last for six to 12 months and then they go off, you know, after they figure out what they actually want to do.

Speaker 1: 23:11

But that's worked pretty well for us in the past.

Speaker 2: 23:14

Yeah, that's, that's interesting. So I kind of go the other way. I would I never hire anyone straight out of college or university Because I feel it's like a lot of things I feel with what you learn in the book it's a little different to how you apply it in real life. So I like to have that kind of experience. You know, couple of years experience under their belt before they go. But I guess with going to college, where you do have someone that comes with a lot of energy, that's really good, that you know you can. You can really shade to how you want things to run. So it's interesting that you find out about that, that I know where it works for you.

Speaker 1: 23:50

Yeah, I think for me the biggest thing is just finding you know, people that are hungry and motivated and want to learn, and then everything else can sort of fall in the place.

Speaker 2: 24:03

Yeah, yeah, yeah, especially with working remote. It's amazing how many one the job at first, but they might just start disappearing. You know you're sending messages and they're just like falling out in a matrix somewhere. They're not answering back and they're just. You know. It is more important, I feel, to have someone that you can trust and rely on when you are, you know, just doing my work, because you obviously don't have these, I'm in the whole time to make sure they're coming in at nine o'clock in the morning.

Speaker 1: 24:32

Yeah, definitely. Well, they used to much for coming on. This was super insightful. You know taxes are a pain for everybody, but I think when it comes to e-commerce businesses, it's even more confusing and complex, given the you know the scope of where they're selling, especially in the US, and I guess not even really touching on international or any of the things that go into that, if you want to start establishing you know, nexus there but I know there's some solutions like Shotfi Markets Pro and things of that nature.

Speaker 1: 25:03

You know what's one last thing that you would give as a you know, as a tip or piece of advice to any merchant that's listening. Yeah, perfect.

Speaker 2: 25:14

Yeah. So the first I'd go with some is, if you feel you're starting to stress about taxes and you know that's going a little bit overhead, it's better to reach out early, because the later you reach out, the more messy it's going to be and you know the more expensive it's going to be at that time. So as soon as you start feeling that kind of pressure of taxes over your shoulder, reach out to a professional and get some help. And yeah, it's worth it, just to get yourself to sleep more comfortably at night, if nothing else. So, yeah, better to get yourself set up properly. But now, thanks very much for having me then. Vanden, it's been awesome speaking to you.

Speaker 1: 25:51

Of course, before we hop, can you let everybody know where they can find you?

Speaker 2: 25:56

online? Yeah, sure. So our company name is Bean Ninjas and you can find us online at bean ninjascom and you can see our services there for USA, UK and Australia.

Speaker 1: 26:12

Awesome. Well, thank you so much for coming on for everybody listening, as always, this is Brandon Amoroso. You can find me at brandannamorosocom or electricmugglingcom and we will see you next time.