The Biggest Accounting Mistake in Ecommerce (And How to Fix It) — Parag Mamnani | Why AI Misses Accounting Accuracy, How Hidden Fees Drain Margins, What Real Financial Data Unlocks, Why SKU Level Costs Matter, How Human Review Fixes Books (#494)

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00:00:09:06 - 00:00:28:22
Unknown
They don't actually look at their accounting with small businesses. Okay, with 95% accuracy of their books, you need to have it 100% right. I am not a believer that we should ignore AI, but the real value here unlocking is the knowledge that almost right is not good enough.

00:00:29:00 - 00:00:52:05
Unknown
Hello and welcome to another episode of the E-commerce Coffee Break podcast. Today we are talking about something. Every e-commerce brand depends on the numbers. Every month your books get closed, your reports look complete, and your accounting software tells you everything is reconciled. But if your numbers are really right, hidden fees, refunds, marketplace payouts, inventory adjustments, small errors can quietly turn into expensive business decisions.

00:00:52:05 - 00:01:13:08
Unknown
So how do you know if you can really trust your books to help answer that? I'm joined by Parag Mamnani, founder and CEO of Webgility. Since founding in 2007, Park has helped thousands of e-commerce businesses gain accurate financial visibility through smart automation and expert reconciliation. Welcome to the show. Thank you for having me. I was excited to chat. Let's dive right into it.

00:01:13:09 - 00:01:42:07
Unknown
Most e-commerce brands close their books every month. Why do so many have still decisions that are based on wrong numbers? Well, I have to correct you first and foremost, because most businesses don't actually do a good job of closing their books every month. So of the ones that do close every month. You know, lots of times what we find in business owners fall behind on closing their accounts that typically they can even go all the way through a quarter before they go back and do the reconciliation for the full period.

00:01:42:09 - 00:02:05:12
Unknown
The simple answer to your question is that, you know, closing books is about matching fundamentally what your bank account says with the transaction history that you see throughout all of your systems. So if you can kind of match at the end of the statement and say, okay, my books reconcile and the numbers are matched up. Most business owners consider that books done right.

00:02:05:14 - 00:02:40:09
Unknown
This is simple. If the numbers are equal, you're good. But part of the reason why the reconciliations not done correctly is because behind all of the final numbers, right behind the bank statement at the end is actually all of the minutia and the details of what happened and what happens throughout an e-commerce businesses journey, as you probably know really well, is that, you know, lots of transactions are happening and various simple use cases.

00:02:40:09 - 00:03:01:05
Unknown
An order, an order goes through its entire life cycle, from it being placed to it being fulfilled, to it being fully settled. And through its journey it goes through a number of different hops. So once it gets filled, it can reach into different states where part of it might be fulfilled in other parts, maybe unfulfilled. You also have the sales tax component.

00:03:01:05 - 00:03:20:10
Unknown
Whether you collected the accurate amount of tax or you did not. You have a number of states where even after you've done a fulfillment, an order might get refunded. And of course, as you know, when you deal with marketplaces now you have a whole plethora of fees that get tacked on depending on the state of that order in its journey.

00:03:20:10 - 00:03:46:17
Unknown
So you know, what starts off as a simple credit or debit is actually the life cycle of an order that's going through the beginning to end. And what often gets missed and where the books tend to be inaccurate is no bookkeepers, accountants. Our job, in most cases, is to kind of match it and get the reconciliation right. But all of the nuances that happen to these orders and that gets compounded, right.

00:03:46:18 - 00:04:26:04
Unknown
The more complex your business, more channels you sell on. You have a lot of different complexity depending on your catalog size, the number of payment methods that you support, the number of jurisdictions where you have sales tax collected, where whether you're using a third party or not. And how are you doing fulfillment. So really, the financial truth of your business is actually not very well captured in most cases when we work with our when we work with, you know, multi-channel sellers, you think about a $10 million business that's selling on a couple of channels and supports a few methods and maybe has their own small warehouse, or they're using a three people.

00:04:26:05 - 00:04:53:16
Unknown
There's just so much complexity. And this leads to so many challenges from a bookkeeping standpoint. And so what we really believe is that, you know, until you dig in and can understand your business details at askew level, and you start to really unpack a lot of the ground details of the fees that you're incurring across your channels. That's where all the nuances, where all the inaccuracies happen.

00:04:53:17 - 00:05:15:03
Unknown
I won't even talk about the simplest of use cases, where business owners will take the net deposit from Amazon and count that as revenue, right? I mean, I a lot of newbies do that, but, you know, I think we've crossed that barrier where people get that part. But it's really how do you categorize things? What's actually Cogs, what's actually an expense?

00:05:15:06 - 00:05:36:00
Unknown
How do you categorize the right type of fees, what actually happens to reserved payments, and why? When my Shopify store tells me that I made this amount of money, my bank account doesn't reflect it. You know, there's just so much lost in the detail. And that's where wrong decisions get made. If you don't understand the detail, you're not making decisions based on the right data.

00:05:36:02 - 00:05:54:07
Unknown
Yeah. I think what you just said is a gold mine, because that shows the complexity that you really pointed out. And I think somebody who has just started or is coming from a small medium enterprise going and scaling in e-commerce, they don't really understand how quickly it can get very, very complex. You gave a couple of examples there.

00:05:54:08 - 00:06:16:01
Unknown
Now when it comes to accounting to the books, I think in this conception there is that people see it to just be legal, correct, and make your revenue service happy. But that's not really the point because there's a lot of opportunities in there. Can you talk to me of what a business owner actually look at when they look at their accounting, at their books?

00:06:16:02 - 00:06:37:11
Unknown
It's really funny because in most cases they don't actually look at their accounting. Right? What they look at is some sort of a financial report. That's the end product, right? Most people we talked to don't really want to spend their time inside the accounting system. Right. Because to your point, it's considered compliance. I need to get my books right so that I can hand it off to my accountant, that can do my tax filings.

00:06:37:11 - 00:07:10:09
Unknown
And now I have a good you no control over at least my. Or they'll start to do a whole bunch of cleanup. If they're thinking about selling their business now, they need to get their books and their historical in order. So I think the one sort of fundamental unlock for most people is recognizing that that data and that financial intelligence inside your books is a key unlock to how you can grow your margins, which, as we know right now, are shrinking dramatically for most ecommerce sellers.

00:07:10:09 - 00:07:58:22
Unknown
So the artifact that most people tend to use is pretty much, you know, on a daily basis, they'll rely on like a revenue level or some sort of a reporting analytics tool on top of their e-commerce platform. And ultimately there are there's a truth to that. There's certainly a level of intelligence that you can gather by looking at your top line revenue information that's coming from an analytics platform, but where the real beauty or the unlock is that if you can actually marry that with cost data, and you can look at your cash flow and you get a true sense that you're accounting, GL level, what's happening per skew and how that margin profile is

00:07:58:22 - 00:08:22:09
Unknown
evolving over time. That's where the nuance and the and the creativity is. So what we see is most of our customers, mostly commerce businesses, encounter r making most of their decisions either based off of of an Excel file that they may have custom built, that gives them maybe that unlock the way that they like to see it, because their accounting system doesn't have that granular data.

00:08:22:10 - 00:08:48:19
Unknown
Or they go to this meta layer on top, which is just an analytics tool on top of their e-commerce engine that's communicating it. So the truth is always kind of some mixture of those things that gives them the insight. But ultimately, if you could kind of connect all the dots from all of your sales channels, your payment methods, your shipping processors, and you get it down to a skew level cost data in your financial system of record, like a QuickBooks.

00:08:48:21 - 00:09:12:05
Unknown
That's when you have like the depth and the context across all of those engines that's going to unlock, I think, real profitable insights. One keyword that's really stuck out is cash flow. Cash flow is king. Most e-commerce business, a lot of DTC businesses out there, completely cash flow driven businesses. And as you said, the province margins, because of rising ad costs, are getting smaller and smaller.

00:09:12:05 - 00:09:44:22
Unknown
Now, a lot of business I know out there are now betting on AI, on accounting automation. Why is that not enough? Oh boy. This is a topic I'm incredibly passionate about because, you know, the moment we saw AI and its capability, obviously everyone's sort of instinct was to jump in and apply it to accounting. In fact, you know, I'm my LinkedIn feed is filled with companies that talk about LMS and 90% accuracy and 95% accuracy.

00:09:44:22 - 00:10:05:16
Unknown
And the number one question I have for every one of those people is with small business is okay with 95% accuracy of their books, right? You need to have it 100% right. It has to be 100% accurate. And so I am not a believer that we should ignore AI. I'm total fan of it. I use it every day.

00:10:05:16 - 00:10:48:10
Unknown
In fact, our team is, as we speak, building a lot of agent capabilities, both for our internal company and for also our customers. But the real value here unlocking is the knowledge that almost right is not good enough. You have to get it 100% right in accounting, because not only does the general ledger need to tie out so that you're getting staying compliant, but all of the decisions that are being made, there's so much opportunity here for hallucination and accounting is also so non-deterministic, because what you're reconciling against is a system that's constantly changing.

00:10:48:12 - 00:11:14:11
Unknown
Amazon fees are not the same this month as they were the month prior, right? Customers that are shopping on your on your website are placing orders for products that existed likely today, but we're not in your catalog six months ago. Your cost is evolving on a daily basis. Your fees are changing constantly, so there is such room for human judgment.

00:11:14:12 - 00:11:41:13
Unknown
Now, it's not an all cases. So clearly 90%, 95% will get you a leg there. But we believe fundamentally is that AI is an enabler, but it actually multiplies value for the human. Now, because what we leverage AI for is the 9,095% of the use cases, which you need to actually put a human into the loop. So what is unique solution.

00:11:41:13 - 00:12:18:21
Unknown
And I know I'm pitching our book here, but what is uniqueness here. So we're not only giving you technology but we're also giving you a human accountant, as does the final the last mile to close the books accurately to provide the right reports. So you get that granular detail. And so we are offloading not just the bookkeeping capabilities from the business owners plate, but we're also enabling them with that expert opinion and that accountability where we ensure that the books are 100% accurate.

00:12:19:02 - 00:12:42:05
Unknown
I challenge everyone out there to go ask their AI agent to give them accountability for 100% accurate financials. No, I love this. I'm in e-commerce and digital marketing for 25 years, and I like to talk to a person when it becomes about my books. Obviously over time you learn and you look into the numbers and you understand what's happening, but it's so important.

00:12:42:05 - 00:13:08:21
Unknown
I think that's where you really stand out, is to have someone who understands also your business, because that wasn't the beginning for me. I went through a number of different firms before I found someone who actually understood what we were doing. And I think when it comes to e-commerce and you're doing this for 20 years, so you grew with the technology in the background, you understand the technology, and it's very, very difficult to find someone out there to really understand what goes into e-commerce.

00:13:08:22 - 00:13:30:15
Unknown
Now, for our listeners, how can they find out or how can they tell if their numbers can be trusted or not be trusted right now? Well, the biggest, you know, unlock here is to come chat with our team, because the first thing we do is we do a diagnostic. We have a team here and also our own agent capability that does an analysis of your data behind the scenes.

00:13:30:15 - 00:13:56:06
Unknown
And we will pull up all of your historical and we'll be able to figure out what you're making, your decisions on, where the financials tie in or not, or what level of granularity you have. That might be losing a lot of context. So something that we see most common for business owners is that they rely on these summary level postings that just create like a general ledger entry.

00:13:56:06 - 00:14:15:05
Unknown
They don't have any skew level detail. And the number one pushback I hear from bookkeepers and accountants is I don't want to deal with the inventory. I don't want to deal with the SKUs. And my kind of fundamental pushback for all of them is, well, part of the reason why you don't want to deal with it, because it's complex and it's a lot of data.

00:14:15:05 - 00:14:41:07
Unknown
But that's really the problem that what gelati solves, because we can come in and take all of that complexity away and bring in data at a skew level, get it done right in the books, and that you have information in real time. This is the other key piece of this is if you go ask, most business owners still tell you when was the last time they updated their books, and it's usually at a month end at a quarter end cycle.

00:14:41:07 - 00:15:02:04
Unknown
Or they look at it periodically. Well, why is it that you rely on I mean, your business doesn't stop running for that period of time. It's not that you don't need to know your cash flow on a daily basis. It's not that you should be missing your skill level insights on a daily basis or real time. Why do you need to do this analysis at the end of the month?

00:15:02:05 - 00:15:28:23
Unknown
Why not mid-month? In fact, you'll find seasonal cycles in month periods when you see your cash flow varying frequently. That will give you an incredible insight as to how you should be operating financially, your operations differently to maximize for that window of time where you might have more cash flow. As you know, as a marketer, you know, getting your ad spend right and parts of the season of cycles right is also key.

00:15:29:04 - 00:15:55:20
Unknown
And this is, you know, whether we like it or not, this is really the phase where we are is as empowering as AI is. It's also an equalizer. How do you, as a business owner get that edge? If everyone's got AI, if everyone's going to be able to do analysis, if everyone's going to have some level of general tools at their disposal, you have to continue to find that edge.

00:15:55:20 - 00:16:18:11
Unknown
And it's really an analysis of your data at the skew level, which is what fundamentally we do. So you get always on data in real time, and your books are always reconciled cleanly at the end of every month. And that's how you unlock true profit insights. Yeah, I think AI levels the field there. And now small companies actually can compete with bigger companies when it comes to data.

00:16:18:13 - 00:16:53:17
Unknown
Could you share some kind of success stories or case studies of businesses that you have worked with? Yeah, absolutely. So, you know, if you look across our portfolio, there's just a plethora of obviously customers we have on our website and you can go through them, but without naming any one particular client just to keep their privacy. We had a client that was selling across the US, scaling three physical warehouses in a sporting goods category, and they were looking to expand into multiple marketplaces.

00:16:53:17 - 00:17:19:11
Unknown
They were seeing some success, obviously, in their local distribution, but they also added Amazon. And now they were thinking about TikTok and also to expand internationally. And when they came to us, they didn't have kind of detailed skew level insights about what was happening, and they didn't quite understand what the margins were for particular set of baseball products that they had.

00:17:19:11 - 00:17:46:22
Unknown
And really trying to understand as they expand to these different channels, how are they going to be able to scale effectively because they needed to figure out where they needed to house those products, what the fulfillment model was going to be, whether it was going to be merchant fulfilled or whether they could actually use FBA, and whether the cost of acquisition that they were encountering on TikTok would actually work for them or not.

00:17:46:22 - 00:18:30:18
Unknown
So we actually came in. The first thing we were able to do was, number one, clean up their historical. So we brought in the last year of data into their financial system, where they were capturing all of their cost of goods accurately because they were missing item and order level details in their books. So we brought in the last six months of trend history at the skew level, and by tying in all of their financials to their like, inventory sites that they set up across the different warehouses in their accounting system, now, they were able to look at margins of the skew by their actual location, and that gave them that unlock of knowing that

00:18:30:18 - 00:19:05:17
Unknown
certain product catalog, which was getting a lot more visibility on the West Coast versus the East, they could properly allocate inventory for that particular portion of the catalog, and that allowed them to really do both optimization, not only for their existing Amazon channel, but now they're able to really feel the confidence that when they go out on TikTok and run a really light run, a huge promotion there, how they could optimize their skew at the right physical locations and be able to increase their margins.

00:19:05:17 - 00:19:42:01
Unknown
So they saw a pretty significant margin profile change by adjusting where their SKUs were shipping out of, and they were able to get that unlocked by putting all of the data accurately into their financial system. So again, it's just one of many stories of both cleaning up data, but also really looking at information on a granular level. And I'm sure for a lot of large merchants that have already scaled to 25, 50 million in revenue, they've already created that sophistication in their ERP systems and or hacked together a whole bunch of Excel spreadsheets to give them this type of data.

00:19:42:01 - 00:20:13:02
Unknown
But by far, most merchants don't have that level of sophistication, or they don't want to spend the money on a complex ERP implementation to unlock this insight. So what we also find is just really you can stick with like a QuickBooks online even, and be able to unlock this level of granular skill level insights. So you don't actually need to graduate to an expensive ERP who's a perfect customer at a specific industries or verticals that you work more with than others know.

00:20:13:07 - 00:20:40:15
Unknown
We have crossed the board from, you know, small new businesses that are just getting started all the way to national brands that have distribution across Walmart and other big box retailers. I would say that our sweet spot, though, is typically scaling businesses that are in the 1 to 20 million GMV range that are on multiple channels. We love complexity.

00:20:40:17 - 00:21:07:09
Unknown
We love scaling businesses because they're the ones that are going through these dramatic changes, and they're faced with very expensive technology bills and also the complexity that the encounters, typically where the bookkeeper starts to hit their ceiling and they're spending more and more of their time in messy data and Excel spreadsheets. So 1 to 20 million and the 2 or 3 different sales channels is our sweet spot.

00:21:07:13 - 00:21:31:15
Unknown
Okay, let's talk about pricing. How do you charge for your services? Yeah. So today our pricing is based on certain volume tiers. So as you get more orders or have more channels that you scale with that, we also have two different flavors that we offer. So for folks that are certainly looking for our software solution, we have an entry level plan where they're accountable.

00:21:31:15 - 00:21:58:05
Unknown
They run the software, it runs their brings in their data on a real time basis, and they're responsible at Montana working with their bookkeeper or by themselves doing the reconciliation. Or we have what we call the complete package, where not only do you get the real time software, but you also get a human accountant at the end. Pricing is very transparent, visible on the website, and it just scales as your business grows.

00:21:58:05 - 00:22:19:05
Unknown
But we provide a human accountant that makes sure that your books are guaranteed close and 100% accurate. And I should also add that in the age of AI, while there is certainly a lot of support and service where our AI agents try to do as much of the heavy lifting early on, but we provide a human from day zero.

00:22:19:05 - 00:22:42:02
Unknown
So the moment you sign up with us, you work with a human. Our sales team has humans. Our implementation onboarding team, which we include in all of our plans, is driven by human. And at the end, your bookkeeping is done by humans. So again, we really believe about in having humans in the loop and putting their true expertise and experience to work.

00:22:42:02 - 00:23:00:05
Unknown
So there's a lot of AI inside the product. But ultimately, you know, small business owners and bookkeepers should not be worrying about the technology. They should be focused on getting the right outcome. And that's what we deliver is always on and always reconcile. Books. Oh, that sounds good to me. Where can people go and find out more about you guys?

00:23:00:05 - 00:23:23:11
Unknown
Yes, you can visit web Gelati web GT link hopefully in your show notes. And I usually post regularly on LinkedIn. So happy to interact with folks there. I will put the link in the show notes as always. Then you just want to click away. All right. Thanks so much for your time today. I think bookkeeping was one of the most important things that you can do in a business, and I hope a lot of people will check you out.

00:23:23:12 - 00:23:26:04
Unknown
Thanks so much for your time today. Thank you for having me.