Alan Chen's Mission to Simplify Online Business Finances
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Alan Chen is not your traditional CPA. As the founder of FreeCashFlow.io, the only licensed CPA firm in the US exclusively serving online businesses, Alan has something unique to offer to the accounting world. His firm specializes in helping e-commerce entrepreneurs, Amazon FBA sellers, agencies, content creators, influencers, and SaaS companies minimize their tax bills and settle their bookkeeping.
This interview offers insights into how Alan started with accounting, the critical financial considerations for digital businesses, and how to thrive in the online space.
In this article
From numbers to niche
Joy Wallet: Can you share your journey into the accounting profession and what led you to specialize in services for online businesses?
Alan: My journey into accounting started on a pretty standard path, but it took an unexpected turn during the COVID-19 pandemic. Like many people, I found myself diving into the world of e-commerce, trying my hand at selling an assortment of products. I experimented with trendy items — from fidget spinners to adorable animal-shaped soap dispensers to the ever-popular rose bears. It was an exhilarating experience and a crash course in the countless hats online entrepreneurs wear.
Running an e-commerce business was an all-hands-on-deck experience. I managed suppliers, shipping logistics, marketing, customer service — you name it! However, one thing that quickly became clear to me was how easily taxes and bookkeeping got pushed to the back burner. It was like a ticking clock: as tax season approached, I saw so many business owners — myself included at times — scrambling to organize their finances. How can you find time when you’re already so busy?!
With my background in accounting, I realized I could make a big impact by bringing my expertise to this growing community of digital entrepreneurs. I decided to shift my focus back to my roots and created a specialized service designed to lift the weight of taxes and bookkeeping off the shoulders of online business owners. My goal? To give these passionate CEOs peace of mind so they can continue building their dream businesses without the stress of financial compliance hanging over them.
Unique challenges
Joy Wallet: What unique financial challenges do online entrepreneurs face compared to traditional business owners?
Alan: Online entrepreneurs face several unique financial challenges compared to traditional business owners due to the nature of the digital economy and the different operational models involved. Here are the biggest ones:
- Cash flow variability — Online businesses often experience unpredictable cash flow due to fluctuations in demand, marketing effectiveness, and platform algorithm changes. This can make budgeting and financial planning more difficult than traditional businesses, which may have more stable, predictable revenue streams.
- Marketing and customer acquisition costs — Online entrepreneurs typically rely heavily on digital marketing (e.g., ads, SEO, influencer partnerships), which can be costly and unpredictable. Unlike traditional businesses that may have more consistent local advertising costs, online entrepreneurs face challenges related to ad platform changes and evolving customer acquisition strategies.
- Global taxation and compliance — Online businesses that operate internationally need to navigate complex tax laws across multiple jurisdictions, which can be time-consuming and expensive. Traditional businesses generally face simpler tax structures, especially if they operate locally within a single region or country.
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Sustainable growth
Joy Wallet: How can e-commerce businesses effectively manage cash flow to ensure sustainable growth?
Alan: Cash flow is the lifeblood of a business, and managing it effectively can really make the difference between thriving and just surviving in the digital marketplace. There are several strategies I’d recommend; some of them are:
- Maintain a cash flow forecast — First and foremost, it’s essential to have a cash flow forecast in place. I can’t emphasize this enough. This is basically a projection of your income and expenses over a given period. For e-commerce, where sales can fluctuate daily or weekly, it’s vital to know when to expect cash inflows and when large payments are due. By tracking this, you can anticipate cash shortages and make adjustments, like delaying non-essential expenses or scaling back on inventory purchases.
- Optimize inventory management — The second key strategy is managing inventory efficiently. E-commerce businesses often tie up a significant portion of their cash in unsold inventory, which can hurt cash flow. Having an inventory management system that aligns with demand is crucial. This can mean using just-in-time inventory systems or, in some cases, dropshipping, which minimizes upfront costs and reduces the need to hold large amounts of stock. This approach helps ensure you don’t over-invest in inventory that may not sell quickly enough.
- Negotiate better payment terms — Another important factor is negotiating favorable payment terms with suppliers. This is an area many e-commerce businesses overlook. If you negotiate longer payment terms — say, 30, 60, or even 90 days — you’re buying yourself more time to sell the inventory before you need to pay for it. The flexibility this provides can be crucial for improving cash flow, especially during lean periods or when scaling up your business.
Additionally, building strong relationships with suppliers often means they’re more willing to offer discounts or extend terms, which can significantly reduce the financial strain on your business.
Tax deduction tips
Joy Wallet: What are some common tax deductions that online business owners often overlook?
Alan: Online business owners often overlook the following key tax deductions that can help reduce their taxable income:
- Home office deduction — If you use part of your home exclusively for business, you can deduct a portion of your rent or mortgage, utilities, and home maintenance costs.
- Internet and phone expenses — A percentage of your internet and phone bills can be deducted if they're used for business purposes.
- Software and subscriptions — Business-related software (e.g., accounting tools, email platforms) and subscriptions (e.g., stock images, e-commerce platforms) are also deductible.
- Business meals and entertainment — You can deduct 50% of qualifying business meal expenses when meeting clients or networking.
- Shipping and delivery costs — Shipping fees for delivering goods or services to customers, as well as costs for packaging materials, are deductible.
- Marketing and advertising — Expenses related to online ads, social media campaigns, and influencer marketing are all deductible.
- Professional services — Fees for legal, accounting, or consulting services directly related to your business are deductible.
- Depreciation of equipment — If you buy business equipment (computers, cameras, etc.), you can depreciate the cost over time or take a Section 179 deduction to expense it all at once.
Understanding nexus
Joy Wallet: Can you explain the concept of nexus in sales tax and how it affects online retailers?
Alan: Nexus in sales tax refers to a business’s physical or economic presence in a state that requires it to collect and remit sales tax on sales made to customers in that state. For online retailers, nexus can be triggered by factors like having a physical store, warehouse, employees, or significant sales volume in a state. If an online retailer has nexus in a state, they must comply with that state’s sales tax laws, which may include registering for a sales tax permit, collecting tax from customers, and remitting it to the state. Economic nexus laws, which are based on sales revenue or transaction thresholds, have made this more complex for online businesses.
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Metrics that matter
Joy Wallet: What are the key financial metrics that online business owners should monitor regularly?
Alan: Key metrics include cash flow, gross margin, net profit, customer acquisition cost (CAC), lifetime value (LTV), conversion rate, and inventory turnover. These help assess profitability, efficiency, and growth potential.
Cross-border strategies
Joy Wallet: How can international e-commerce sellers navigate US tax laws to avoid penalties?
Alan: International sellers should understand nexus rules, register for sales tax collection if necessary, ensure proper IRS reporting (e.g., 1099 forms), and stay compliant with import duties and customs regulations. Consulting a tax professional is advisable.
Example:
Let’s say an international seller based in Germany runs an online store and sells products to US customers through their website. To comply with US tax laws, the seller must first determine if they have a sales tax nexus in any US state. If they reach the state’s economic threshold (e.g., $100,000 in sales or 200 transactions in a year), they must register for sales tax collection in that state and remit sales tax on sales made to customers in that state.
Additionally, the seller must file an IRS Form 1099-K if they use payment processors like PayPal or Stripe, meet certain thresholds, and ensure they comply with US Customs and Border Protection for import duties when shipping products into the US.
The power of bookkeeping
Joy Wallet: What role does bookkeeping play in attracting potential investors or securing business loans?
Alan: Accurate and up-to-date bookkeeping demonstrates financial stability, transparency, and a well-managed business. It builds investor confidence and helps secure loans by providing clear financial statements, including balance sheets, profit & loss statements, and cash flow reports.
Tax optimization
Joy Wallet: How can online businesses optimize their tax strategies to minimize liabilities?
Alan: Businesses can optimize taxes by claiming eligible deductions (e.g., home office, marketing costs), utilizing tax credits, managing inventory efficiently, and exploring options like S-corp or LLC structures. Consulting a tax advisor is essential for tailored strategies.
Audit readiness
Joy Wallet: How do you assist clients in preparing for potential audits, and what common mistakes should businesses avoid?
Alan: I help clients keep organized records, ensure accurate tax filings, and maintain proper documentation for deductions. Common mistakes to avoid include poor record-keeping, not separating personal and business finances, and underreporting income.
Embracing the cloud
Joy Wallet: What are the advantages of using cloud-based accounting solutions for online businesses?
Alan: Cloud-based accounting offers real-time updates, automatic backups, easy collaboration with accountants, access from anywhere, and integrations with e-commerce platforms. It improves accuracy, saves time, and enhances financial decision-making.
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- Term as long as 5 years
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- Decisions as fast as 24 hours
- Quick access to your funds once approved
- Applying won't affect your credit score
Avoiding pitfalls
Joy Wallet: What are the most common financial mistakes you see online entrepreneurs make, and how can they be avoided?
Alan: Common mistakes include neglecting cash flow management, mixing personal and business finances, and underestimating taxes. To avoid these, entrepreneurs should separate accounts, track expenses carefully, and plan for taxes ahead of time.
Building financial knowledge
Joy Wallet: What resources or tools do you recommend for online business owners to enhance their financial literacy?
Alan: Here are a few tools I’d highly recommend for online business owners that I’m sure would help their financial literacy grow even more:
- QuickBooks Online — This is one of the most popular accounting software options for small and medium-sized businesses. QuickBooks offers tools for invoicing, expense tracking, payroll, and generating financial reports. They also provide a great educational resource center to help you understand accounting concepts.
- Xero — Similar to QuickBooks, Xero is a cloud-based accounting software that helps business owners manage cash flow, track expenses, and handle taxes. It's known for its easy-to-use interface and integrations with e-commerce platforms like Shopify and Etsy.
- Wave Accounting — A free, user-friendly accounting tool designed for small businesses. It offers invoicing, accounting, and receipt scanning and can be a great entry point for online entrepreneurs who want a no-cost solution to manage finances.
- FreeCashFlow.io — Last but definitely not least, this platform is specifically designed to help online business owners manage their cash flow, optimize profitability, and track financial metrics in real time. It’s great for entrepreneurs who need a specialized tool to track income from multiple revenue streams, manage operational expenses, and stay on top of taxes.
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