Identifying Challenges and How to Find Solutions for International Ecommerce Entrepreneurs Launching a Business in the US
"Ecommerce isn't the cherry on the cake, it's the new cake"
-Jean-Paul Agon, CEO, L'Oreal
A thrilling opportunity awaits international ecommerce entrepreneurs planning to launch a business in the US. Imagine entering a market with the possibility of reaching $1381.74 billion by 2025. What's even better is that you have a chance to build a customer base out of more than 280 million online shoppers. But if you want to witness the rainbow of profits from your online entrepreneurial endeavor in the US, you will have to move past the dark clouds of challenges.
Talking about difficulties, entering the US economy presents fierce competition because the market is saturated by multinational corporations as well as power-hungry startups. Adding fuel to the fire, entrepreneurs also need to comply with the requirements of a complex regulatory framework. Don't believe us? Studies suggest that large American corporations with an asset valuation of more than $10 million have an average compliance burden of 830 hours. Even for small businesses, the average is 55 hours.
The data puts up a clear picture, suggesting that leveraging the goldmine of opportunities available in the US market requires a meticulous approach toward navigating the intricate financial and accounting systems. In this piece, we will discuss the key challenges of launching your e-commerce venture alongside a way out of the dark tunnel of bookkeeping standards to finally find the light of success. So, let's begin the adventure!
Step 1. Navigating the Accounting Principles
The Generally Accepted Accounting Principles (GAAP) pose quite an obstacle for entrepreneurs operating internationally without experience in these accounting norms. GAAP's intricate nature and detailed requirements differ noticeably from more commonly used standards, such as International Financial Reporting Standards.
Business owners must demonstrate that their fiscal reports align with GAAP's multifaceted demands, including revenue factors, the classification of costs, and comprehensive transparency. News about scandals surrounding companies overlooking GAAP requirements have surfaced time and again in the US and have changed the country's economic landscape. To highlight one, let's dig into the WorldCom scandal.
A Glance at the WorldCom Scandal
It happened in 2002 when WorldCom admitted to inaccurately accounting for $4 billion in expenses. Here's how the telecommunications company violated key GAAP components:
Consistency: While consistency refers to utilizing similar accounting practices consistently, WorldCom flouted this standard beginning in 1999. Their accounting manipulations included alternation in how they tabulated line costs, juggling accruals, and recording nonexistent earnings.
Verifiability: Verifiability implies that multiple bookkeepers would arrive at matching account balances. Yet plainly, other CPAs would be unable to tally the balance sheets made at WorldCom. Therefore, WorldCom's returns are impossible to substantiate.
Freedom from error: This attribute signifies that submitted totals should mirror the most proficient obtainable data and the administration's impartial perspective. Since WorldCom's intended GAAP infringements were to boost income to meet or outperform outside income projections, they were neither free of fault nor unprejudiced.
A Likely Solution
Seeking help from the best accounting firms is necessary to overcome the issue of GAAP compliance. Imagine yourself as a Canadian businessman aiming to launch your ecommerce enterprise in the US. One thing to note here is that IFRS is followed in Canada.
A major difference between the two standards of accounting is evident in terms of inventory reporting. While IFRS bans the last-in-first-out method, GAAP allows it. Any Canadian trying to launch their business in the US will need assistance from accounting experts to deal with it.
Consider the example of Shopify here, which has humble roots in Canada. It has been quite successful after its launch in the US, and that's evident from its 29% market share in the country. That has probably been possible due to the partnership with Deloitte, a leading accounting firm in the US.
Step 2. Logistics and Inventory Management
As per the Bureau of Transportation Statistics, 45% of online retail shipments encounter delays due to customs problems. Effectively managing logistics and stock is crucial for the success of online retail in the United States. This involves comprehending shipping rules and tariffs and guaranteeing prompt delivery to meet customer expectations. The US has strict customs prerequisites, and setbacks or non-conformity can interrupt business activities.
A Solution with an Example
Leveraging third-party logistics (3PL), providers can aid in handling warehousing, shipping, and customs clearance. Amazon's FBA service is a favored option for overseas vendors, providing warehousing and shipping solutions that conform to US laws.
An illustration is Anker, a Chinese electronics firm that expanded into the US market and utilized Amazon FBA to oversee logistics, ensuring effective stock management and timely deliveries.
Steven Yang, the CEO of Anker Innovations Technologies, states that Amazon turns selling into a low-barrier thing by providing services like the FBA.
Anker utilized Amazon FBA to administer its stock and shipping procedures in the US. This collaboration empowered Anker to adhere to US shipping rules, manage customs tariffs proficiently, and assure punctual deliveries, therefore advancing customer gratification and lessening setbacks.
Step 3. Securing Funding and Managing Finances
Obtaining funding for a new business endeavor in the United States can be quite daunting due to discrepancies in financial landscapes and investor anticipations. As stated in a study, venture capital investments in the US totaled $170.6 billion in 2023, underscoring the accessibility of capital and the cutthroat environment when it comes to acquiring it.
Furthermore, effectively handling finances, encompassing cash flow, budgeting, and financial projections, plays a pivotal role in upholding operations and expansion.
Solution with an Example
Entrepreneurs ought to delve into assorted funding alternatives, such as venture capital and angel investors. It is also a good idea to explore crowdfunding platforms like Kickstarter and Indiegogo, which enjoy popularity in the US. Ultimately, the ubiquitous presence of e-commerce serves as an influential factor that no investor can overlook.
Additionally, leveraging financial management software like QuickBooks or Xero can facilitate adept financial management. For instance, Revolut, a fintech company headquartered in the UK, stands out as a notable illustration in this regard.
Revolut secured $500 million in a financing round spearheaded by Silicon Valley-based venture capital entity TCV, allowing the firm to broaden its operations across the US. Deploying QuickBooks proved instrumental for Revolut in governing its finances, guaranteeing precise budgeting, cash flow administration, and financial projections.
Step 4. Understanding Taxation Laws
The bewildering US tax system is intricate, encompassing federal, state, and local tax responsibilities. The federal corporate income tax rate sits at 21%, but that's merely the tip of the iceberg. State-specific taxes, sales taxes, and potentially franchise taxes introduce layers of complexity.
A total of 45 states, along with the District of Columbia, impose statewide sales taxes, while 38 states collect local sales taxes. In certain instances, these local taxes can be on par with or even surpass state rates.
The highest average combined state and local sales tax rates are as follows:
StateTax PercentageLouisiana9.56%Tennessee9.55%Arkansas9.45%Washington9.38%Alabama9.29%
Source: Tax Foundation
Finding a Way Out of Tax Complications
Two key Supreme Court rulings have influenced the requirements for online sellers:
The Quill Decision (1992) determined that states could solely mandate sales tax collection from sellers with a physical presence or "nexus" in that state.
The Wayfair Decision (2018) overturned Quill, enabling states to enforce sales tax collection as per economic nexus, including a specific sales threshold into the state.
Seeking help from tax attorneys will help you understand the implications of these laws. Leveraging tax software designed for US regulations, such as TurboTax or H&R Block, can aid in managing these duties.
With more than 12,000 tax jurisdictions nationwide, handling registration, collection, filing, and remittance in each state can be incredibly burdensome. Your e-commerce platform might integrate compatible sales tax automation software tools to address these intricate responsibilities. Seeking guidance from a US-based tax advisor is also crucial.
Step 5. Payment Processing and Currency Conversion
It is crucial to establish payment processing systems that can accommodate various payment methods commonly used in the United States, including credit cards, PayPal, and digital wallets. Moreover, managing currency conversion between the business owner's home country and the US can present challenges in financial reporting and cash flow management. Variations in currency exchange rates may have an influence on profit margins and financial stability.
Possible Solutions
Collaborating with reputable payment processors like Stripe or PayPal can facilitate the acceptance of US payment methods. For example, the German e-commerce giant Zalando leveraged PayPal to handle payments in the US, enabling it to cater to an array of payment options.
Additionally, utilizing currency exchange platforms such as TransferWise (now known as Wise) can help reduce transaction costs and simplify currency conversion for international entrepreneurs establishing their online stores in the US.
Need Help To Incorporate Your Ecommerce Business: Contact Samscashflow Agency
Establishing an online business in the US as an international entrepreneur involves facing financial and accounting obstacles, such as understanding GAAP and tax regulations, handling operations, and obtaining financial support. Nonetheless, by implementing effective approaches and seeking expert advice, these hurdles can be effectively addressed, paving the way for a prosperous entry and expansion in the profitable US market.
Need help? Book a call and get professional advice from SamsCashFlow Agency. They will take the lead and help you identify the major challenges as well as solutions in launching your ecommerce venture.