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November 21, 2024

Optimizing Accounting for the Black Friday Sales Rush

Learn with Versa on how to optimize accounting for the sales and hustle of Black Friday.

Black Friday, the busiest shopping day of the year in the United States, raked in a record $9.12 billion in 2020 despite the pandemic, up 21% from the previous year. With more sales happening online, the one-day shopping frenzy presents unique challenges for retailers in managing inventory, processing payments, tracking customer returns, and keeping accurate financial records amidst the flurry of transactions.

During the Black Friday rush, overwhelmed accounting teams often struggle with categorizing expenditures, reconciling bank statements, tracking refunds, and accounting for them accurately. Without proper planning and efficient procedures in place ahead of time, it becomes tremendously difficult to generate financial reports post-Black Friday. This impacts inventory management decisions for the holiday season and accurate forecasting.

This comprehensive guide offers retailers structured strategies and best practices to effectively set up their accounting process before Black Friday and execute accounting procedures seamlessly during and after. With proactive preparation and streamlined financial management, retailers can leverage the profits earned on Black Friday for growth.

We will begin by examining Black Friday sales trends and metrics to inform financial planning. Next, we explore ways retailers can optimize their accounting process through updated software, checklists, and training to build capacity. We will also provide specific accounting guidelines for Black Friday transactions including sales reconciliation, returns, and refunds. Finally, we offer targeted tips for e-commerce businesses, small retailers, and those managing international sales during the shopping frenzy.

Benefits: Accurate Black Friday accounting ensures retailers capture the true profitability of their biggest sales day. With reliable reports on sales volumes, conversion rates, profits, and losses, retailers can make data-backed decisions on inventory purchases, staffing, and store locations for the future. Tracking key metrics around payments, refunds, and inventory turnover also provides useful consumer insights. Maintaining organized, transparent financial records during Black Friday forms the base for long-term business growth.

Understanding the Black Friday Sales Landscape

Black Friday Sales Forecasting: Analyzing historical sales data from the past 3 Black Fridays provides a baseline to forecast sales. Factor in growth rates from previous years while also considering external factors like consumer confidence, unemployment rates, and your current inventory levels. Account for various scenarios using probability-based modeling – best case, worst case, and most likely case. Ensure your accounting software seamlessly integrates with sales data for real-time visibility.

Key Metrics: Carefully track:

Conversions to sales on Black Friday
Average order volumes
Average selling price per item
Attachment rate for warranties or accessories
Return rate

Understanding your customer lifetime value based on the Black Friday cohort of new customers also impacts longer-term financial planning.

Impact by Business Type:

For eCommerce businesses, Black Friday strains website infrastructure, payment gateways, and shipping costs more than brick-and-mortar stores.
For physical retailers, inventory management and in-store promotions during peak foot traffic pose bigger challenges.
For subscription businesses, Black Friday sign-ups need tracking to project revenue and churn rates.

Sales Trends:

As per the National Retail Federation (NRF), online sales grew by 55% on Black Friday in 2020 compared to previous years.
Buying patterns have also shifted earlier in fall and Cyber Monday has grown tremendously.
Retailers need to track sales over a longer period while heavily investing in digital experiences.
Curbside pickup options are also rising in demand.

Pre-Black Friday Planning: Laying the Foundation for Financial Success

The key to a successful Black Friday sales event is careful planning and preparation. By setting realistic budgets, managing inventory efficiently, and ensuring adequate cash flow, retailers can reap rewards while avoiding common pitfalls. This article outlines critical financial planning areas and accounting considerations for optimizing your Black Friday performance.

A. Budgeting & Forecasting: Setting Realistic Expectations and Managing Resources

Carefully developed budgets and sales forecasts lay the groundwork for an organized, profitable Black Friday. By allocating resources effectively and anticipating costs, retailers can drive revenue while controlling expenses.

Sales Projections: Unlocking the Power of Data

Accurate sales projections are invaluable for Black Friday preparation, allowing retailers to stock adequate inventory and assign staff appropriately. Rather than relying on intuition, leverage historical sales data, industry trends, and insights from past marketing campaigns to create realistic projections.

Analyze sales figures from prior Black Fridays, noting bestselling items, volumes, and growth over time. Account for external factors as well, like economic trends and new competitors.
Examine data from other peak sales periods, such as holidays, annual sales, or recurring promotions. Identify consistent high-demand categories.
Incorporate findings from email campaigns, social media engagement, and other marketing analytics to estimate interest and refine projections.
Break down projections by product category and demographic to determine inventory requirements, marketing focus, staffing needs, and more.

Accounting Focus: Feed projections into a preliminary budget outlining anticipated revenue, costs of goods sold, and expenses. Compare against historical performance to identify potential issues proactively. Build in contingency funds to allow flexibility.

Inventory Planning: Balancing Demand and Supply

Inventory planning prevents shortages that lead to lost sales or surpluses that strain cash flow. Utilize sales projections to determine optimal inventory volumes by product.

Consider lead times when placing inventory orders to ensure timely availability. Build in extra supply for top-selling items.
Analyze storage capacity constraints, particularly for oversized merchandise. Identify external storage or display options.
Implement inventory tracking systems to monitor real-time stock data. Link these to your e-commerce platform to sync levels across channels.
Develop contingency plans for reordering or returning surplus inventory if sales projections are inaccurate.

Accounting Focus: Prepare an inventory budget detailing total units and costs across products, incorporating planned inventory growth. Compare to historical inventory spending patterns.

Budgeting for Expenses: Anticipating Costs and Staying Within Budget

A detailed expense budget is vital for anticipating Black Friday costs and avoiding unexpected overages. Consider all potential cost categories, including:

Marketing: Advertising, email services, promotional merchandise, signage, etc.
Operations: Payroll, security, maintenance, payment processing fees, etc.
Logistics: Shipping, returns processing, delivery fees for inventory orders
Other: Insurance, utilities, seasonal contractors/staff, permits, etc.

Build in buffers for each category to allow flexibility, drawing on historical averages.

Accounting Focus: Organize expenses into line items for tracking during Black Friday sales. Compare costs across prior year events to inform budget. Implement controls to contain spending.

Cash Flow Management: Ensuring Liquidity and Avoiding Financial Strain

Managing cash flow is imperative during Black Friday’s frenzied sales. Develop projections highlighting potential gaps between outgoing and incoming funds so you can prepare adequately.

Account for accelerated inventory purchasing, marketing, and staffing expenditures leading up to the event.
Factor in payment cycles – many customers will not pay until credit card billing cycles close.
Explore financing options like business credit cards or lines of credit. Time applications carefully, as approval processes take time.

Accounting Focus: Update cash flow projections frequently as Black Friday approaches. Identify expected low points where a shortfall is most likely. Secure access to funds in advance.

Preparing Your Accounting for Black Friday

Inventory Management Strategies:

Connect your e-commerce platform or POS system to your accounting software for real-time inventory tracking.
Conduct pre-season counts of existing inventory by location.
Based on sales forecasts, determine additional inventory needs and schedule replenishment cycles to prevent stockouts.
Integrate an inventory management system to adjust stock levels dynamically during sales.

Choosing Accounting Software: Select cloud-based software like QuickBooks Online or Versa Cloud ERP for anywhere accessibility during peak sales. Ensure integration with payment gateways like PayPal, Stripe, and major credit cards for smooth reconciliation. Mobile apps enable managing accounting on the go. Dashboards should provide real-time visibility into all key metrics highlighted earlier during the sales frenzy.

Accounting Checklist for Preparation:

Back up financial data across accounting and sales software to prevent data loss.
Update accounting software to the latest version and configure settings for Black Friday promotions, discounts, and payment methods.
Reconcile outstanding vendor bills and payments due to start with a clean slate.
Review and update inventory counts across locations.
Brief accounting and sales teams on peak season protocols through training workshops.
Verify security protections on all accounting software and hardware in use.
Test for system crashes by simulating peak volumes.
Establish dedicated customer support for payment or refund assistance.

Handling Payments: Offer seamless omnichannel payments – in-store through POS, online via payment gateway, and through mobile apps. Accept all major credit cards, debit cards, mobile wallets, Buy Now Pay Later options, and gift cards. Route all payments through accounting software for easy reconciliation. No need to manually record every transaction.

Managing Returns and Refunds:

Update return and refund policies for the holiday season across stores and websites.
Automate refund processing times.
Set reminders for any manual checks due.
Ensure accounting software captures payment reversals for complete visibility.
Implement holiday return allowance budgets.

Black Friday Accounting Procedures

Categorizing Sales: Set up a clear hierarchy for sales channels – by website, brick-and-mortar stores, mobile apps. Within each channel, log types of sales – full-price, discounted, promo code, real-time coupons. Under payment methods, split transactions by card types – Visa, Amex, Mastercard. Separate gift card redemptions. Categorize sales by product types – electronics, clothing, home appliances, etc.

Recording Sales: Configure accounting software to automatically pull in sales data from individual channels instead of manual entry. Sales get tagged with pre-set categories for the channel, product type, discount types, etc enabling deeper analysis. Reconcile credit card sales with merchant processor records weekly.

Reconciling Bank Statements: Download bank transaction reports frequently during peak season. Import bank statement data feeds into accounting software and use auto-reconciliation tools to match deposits to sales receipts. Review any unclear reconciling items. Repeat reconciliations weekly post-event after outstanding transactions clear.

Tracking Refunds: Record refunds from payment gateways automatically within accounting software via integrations. For manual checks, log each refund transaction under customer accounts. Set up contra-revenue accounts for recording negative sales from returns, cancellations, etc. Link refunds to corresponding purchase receipts for tracking.

Automating Accounting: Use apps like ReceiptBank to automatically capture and categorize expenses from staff purchases of inventory, supplies, etc. Generate invoices and customer billing automatically based on sales receipts. Append necessary metadata like SKUs, discounts, etc for deeper analysis. Use the rules engine to auto-reconcile matched transactions.

Specific Business Considerations

Black Friday Accounting for E-commerce: Choose scalable cloud infrastructure to run e-commerce operations during peak. Have dedicated customer service teams for order or payment inquiries. Use ERP software like Versa Cloud ERP that tightly couples inventory, order fulfillment, and accounting. Automate inventory count adjustments. Carefully track shipping and payment processor fees that spike.

Accounting for Brick-and-Mortar Stores: Integrate point-of-sale software with accounting systems for centralized data. Set up a secure VPN for remote access to sales dashboards for store managers. Make provisions for temporary seasonal hires. Store managers should conduct daily inventory checks. Shift managers should handle cash and receipts.

Accounting for Small Businesses: Use free or low-cost solutions that link to bank accounts. Take advantage of discount periods before Black Friday for transaction processing costs. Implement loyalty programs to track customer activity year-round. Start sales earlier and offer free shipping or bundled pricing.

International Sales and Tax Implications: Consult tax attorneys experienced with international e-commerce laws when expanding overseas. Carefully track payments through gateways optimized for cross-border transactions. Monitor fraud via services like ChargeBacks911. Use customs brokers for simplifying compliance and import duties.

Seasonal Inventory Management: Plan end-to-end supply chain management for the holiday season in advance. Order early from vendors/distributors to prevent stockouts. Renegotiate supplier contracts for better margins. Use promotional pricing and bundles to minimize post-holiday inventory that doesn’t sell.

The well-planned strategies presented across areas like inventory, payments, accounting software, returns, and more provide a structured approach to managing increased sales activity during Black Friday smoothly. Retailers who invest in operational scalability and financial visibility will continue leveraging the Black Friday momentum for long-term success.

Conclusion

In summary, thorough pre-Black Friday preparation involving careful budgeting, forecasting, and inventory planning lays the groundwork for financial success. Leverage data and analytics through Versa’s integrated ERP platform to set realistic targets, allocate resources strategically, and align supply with anticipated demand. Robust accounting practices enable you to track expenses, manage cash flow, and mitigate financial risk throughout the season.

Similarly, reconciling post-Black Friday sales and inventory while generating insightful financial statements provides clarity into operational performance. Identify discrepancies, adjust inventory valuation accordingly, and pinpoint areas for process improvements. With Versa ERP, seamlessly generate the financial reports needed to evaluate results and uncover new profit opportunities.

Don’t leave your Black Friday success to chance – maximize profits with the financial visibility and control provided by Versa. Schedule a free demo today to experience Versa’s powerful planning, accounting, and analytical capabilities tailored for your retail operation. Let us show you how a single integrated solution can set you up for ongoing financial health.

Post-Black Friday Accounting & Analysis: Evaluating Performance and Planning for the Future

Thorough accounting, analysis, and financial reporting after Black Friday provide invaluable insights for improving future events. Reconcile inventory and sales records, assess profitability, and uncover performance gaps to implement remedial or optimization strategies.

A. Reconciling Sales & Inventory: Ensuring Accuracy and Identifying Discrepancies

By reconciling sales and existing inventory, retailers can correct records, reduce shrinkage loss, and explain missing items.

Reconciling Sales Data with Inventory Levels: Matching Records and Identifying Shortfalls

Contrast sales records from Black Friday against inventory systems, matching product IDs and quantities sold. Investigate any products showing more sales than inventory.
Verify the accuracy of sales data by pulling original receipts or invoices. Check for data entry issues.
Review inventory system data, auditing for possible errors in manual counts or automatic logging.
Identify causes of unexplained mismatches, like theft or process gaps, and address them with corrective action.

Accounting Focus: Make inventory value adjustments based on audited stock counts. Write off missing inventory as a loss. Ensure accounting accuracy.

Identifying Inventory Discrepancies: Addressing Stock Shortages and Overages

Uncovering inventory discrepancies is key for correcting records and preventing recurrence.

Significant shortages indicate loss from theft or errors, while overages suggest process gaps. Compare counts from before and after.
Review security practices, inventory tracking methods, staff training, and more to tackle root causes.

Accounting Focus: Track lost inventory value. Review insurance coverage for theft-related losses. Refine policies to improve accountability.

Adjusting Inventory Valuation: Reflecting Actual Sales and Returns

Update inventory accounts to reflect reconciled post-event counts, sales revenues, and customer returns.
Apply inventory costing methods like LIFO, FIFO, or weighted average to determine current valuation.
Remove sold products from inventory asset accounts and deduct returned items.
Consult an accountant to ensure adherence to accounting standards. Proper valuation impacts taxes.

Accounting Focus: Choose inventory valuation strategies balancing accuracy with favorability for tax liabilities. Integrate updated figures into financial statements.

B. Financial Reporting & Analysis: Assessing Performance and Identifying Opportunities

Financial statements presenting Black Friday results offer retailers insights into sales, costs, profits, returns, and more. Further analysis unlocks opportunities.

Generating Financial Statements: Providing a Clear Picture of Black Friday Performance

Draft key statements illustrating Black Friday finances:

Income Statement: Outlines revenues, cost of goods sold, expenses, and profit generation
Balance Sheet: Offers a snapshot of assets and liabilities after the event
Cash Flow Statement: Details cash inflows and outflows from operations, financing, and investing

Accounting Focus: Verify statements adhere to GAAP standards. Ensure accurate categorization of all line items relevant to the event.

Analyzing Profitability & ROI: Measuring Success and Identifying Areas for Improvement

Compare profit margins, return on investment (ROI), and key ratios to prior years. Determine whether Black Friday delivered favorable returns on marketing and inventory investments relative to alternatives like online sales or promotions. Break out analysis by product category, inventory source, marketing channel, and other variables as warranted. Uncover areas for optimization like pricing policies, inventory selection criteria, or ad targeting tactics based on ROI differentials.

Accounting Focus: Incorporate Black Friday KPIs into overall profitability assessments, rather than siloing event performance. Identify correlations such as halo effects on non-promotional sales.

Identifying Areas for Improvement: Optimizing Future Black Friday Campaigns

Pinpoint specific components in need of enhancement – product selection, inventory volumes, cash flow buffers, etc. – through financial analysis. Overlay qualitative data around customer satisfaction, foot traffic, web metrics, and staff feedback. Develop concrete recommendations and project impact on cost savings or revenue growth. Operationalize improvement plans well in advance of next Black Friday.

Accounting Focus: Estimate sales or cost adjustments in budgeting for future events, applying insights from past event performance analysis. Build contingency plans to test alternative product mixes, inventory levels, or promotion types.