an accountant’s checklist to starting an e-commerce business

Xolo • Dec 16, 2024 • 13 min read

Xolo offers this checklist to help e-commerce entrepreneurs streamline operations, manage finances effectively, and build a strong, sustainable business strategy

This guest post about e-commerce business and strategy was written by Stella Tischler, Head of Service Delivery at Xolo, a trusted member of the e-⁠Residency Marketplace.

E-commerce businesses face unique challenges, including shipping, tracking, invoicing, and handling product guarantees, all of which add layers of complexity. According to Forbes, the majority of digital brands struggle to maintain long-term success, with up to 90% failing within a few years due to challenges like high customer acquisition costs and complex logistics.

At Xolo, we support thousands of entrepreneurs through Estonia's e-⁠Residency program, and we’ve seen the importance of addressing these areas from the outset. To improve your chances of joining the successful 10% and setting your business on a path to success, I’ve compiled the most important areas you need to consider.

Use this checklist to streamline operations, manage finances effectively, and build a strong, sustainable business strategy. With the right foundation and proactive planning, you can set your business on a path to success.

6+1 absolute considerations before your e-commerce business launches

Define your product range and market niche
Develop your e-commerce business pricing strategy
Clarify your customer type: Individual or Business?
Identify your customer’s location: EU or International
Determine warehousing needs for your e-commerce business
Select your sales channels
Set your e-commerce business up with Xolo

If you're thinking of launching your own e-commerce business in the EU, you’ll be facing some essential choices. This checklist will help you navigate these considerations from an accountant’s point of view, making your setup smooth, while ensuring that you remain compliant across the board.

From product selection to tax obligations, here’s the steps you should consider.

1. Define your product range and market niche

The foundation of any successful e-commerce business is a clear understanding of what you’ll be selling and to whom. This begins with deciding on the types of products—whether physical goods, digital products, or services—you’ll offer, and choosing a market niche that will guide your entire business strategy, from supply chain logistics to pricing and sales channels. Let’s take a closer look at each individual factor:

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What’s the difference? Physical goods vs. Digital products

Physical goods: These are tangible items that require manufacturing, storage and shipping. Common examples include clothing, electronics, home decor, and any items customers expect to hold in their hands. Handling physical products often involves building relationships with suppliers, managing inventory, and setting up a fulfillment process to ensure customers receive their orders on time. This type of business also comes with logistics challenges, such as warehousing, inventory management and shipping coordination.
Digital products: In contrast, digital products include items that can be delivered electronically, such as e-books, software, online courses, music and design templates. Because there’s no need for physical storage or shipping, digital products have minimal overhead costs once created and can be sold repeatedly without additional manufacturing. Digital products are well-suited for businesses looking for lower operational costs and faster global reach, as there are no shipping constraints.

Supply chain considerations in e-commerce

The supply chain encompasses everything involved in creating and delivering your product to the customer. For physical goods, this includes sourcing raw materials, working with manufacturers, and establishing relationships with various types of suppliers and distributors, each offering different advantages depending on your business model:

Print-on-Demand (POD) suppliers: POD suppliers produce items only after they are ordered, allowing you to offer customizable products like apparel, accessories or home decor without holding any inventory. This model minimizes upfront costs and is ideal for unique or limited-edition products. However, since each item is made to order, fulfillment times can be slightly longer than with pre-made stock.
Dropshipping suppliers: With dropshipping, you work with suppliers who store, package and ship products directly to your customers. This model allows for a broad product catalog with minimal overhead, as you don’t need to hold or manage inventory. It’s ideal for businesses just starting out or those looking to offer a wide variety of items without the need for warehousing. However, quality control and shipping times are determined by the supplier, so choose reputable dropshippers to maintain a positive customer experience.
Manufacturers: Working directly with manufacturers allows for custom product creation, which is ideal for businesses with unique product designs or those seeking to build a distinct brand. Manufacturers can offer higher levels of customization, better control over quality, and lower production costs at higher volumes. However, this route requires more upfront investment and logistics management, including warehousing and shipping.
Wholesale suppliers: Wholesale suppliers sell products in bulk at a discounted rate, which you can then resell at retail prices. This is a good option for businesses looking to buy established products in bulk to control inventory and profit margins. Wholesale purchasing requires storage space and may necessitate significant upfront investment, but it allows for quicker fulfillment since the products are already in stock.
Digital product platforms (for Digital Goods): For digital products, the supply chain is more focused on content creation and distribution platforms. Content is stored and delivered digitally, often through platforms like Gumroad, Shopify or subscription-based models. This eliminates the need for physical storage or shipping, making it cost-effective and scalable.

A well-planned supply chain tailored to your business model helps streamline operations, ensuring that you can meet customer demand and maintain product quality. The right choice of suppliers can support smooth fulfillment, reduce costs, and help your business adapt as you grow.

2. Develop your e-commerce business pricing strategy

Setting the right price for your products is crucial, especially in e-commerce. The right strategy will make or break profitability.

Pricing strategies vary based on factors like product type, target market, competition and production costs. As an example, physical goods typically require a markup to cover production, storage and shipping, while digital products–these generally have lower overhead costs–may allow for more flexible pricing models. Common strategies include cost-plus pricing (adding a fixed profit margin), value-based pricing (based on perceived customer value) and competitive pricing (aligning with competitor rates).

You’ll need to account for taxes (primarily VAT) which can significantly impact your pricing. VAT can comprise up to 25% of the total price, making it a substantial factor that should be built into your pricing from the start. This is often a primary consideration for accountants, as failing to factor in these tax obligations can drastically impact your margins and long-term success.

3. Clarify your customer type: Individual or Business?

It’s time to decide if your focus is on individual consumers (B2C) or other businesses (B2B). This distinction is essential and will affect marketing, sales channels, and even tax considerations.

Popular platforms like Shopify, WooCommerce, Amazon and Etsy serve B2C well, while B2B may require specialized sales processes or platforms that support bulk orders. Whether you choose B2C or B2B, e-⁠Residency pairs with Xolo’s services to support both types of business models, making compliance and reporting requirements far simpler.

4. Identify your customer’s location: EU or International

The EU offers a single market with fewer regulatory barriers when trading across member states, which simplifies charging and collecting VAT and other tax obligations within the region.

Selling outside the EU introduces customs duties, VAT obligations and legal complexities, so you’ll need to be prepared for additional administrative work. For e-⁠residents operating through Xolo, we handle tax and regulatory obligations within Estonia, helping you stay compliant.

If your business holds VAT registrations outside Estonia, such as a German VAT number, you'll need additional assistance for those specific jurisdictions.

5. Determine warehousing needs for your e-commerce business

Not every e-commerce business requires a warehouse. If you’re selling digital products, print-on-demand items or dropshipping, inventory and storage are handled externally, reducing logistic complexity.

If you manage your own inventory, warehousing becomes a major consideration. When storing goods within the EU, outside Estonia, you’ll also need a local service provider for VAT and other country-specific tax reporting.

Set up your e-commerce business. The ultimate accountant's checklist. Steps to consider when starting out in e-commerce.

6. Select your sales channels

Choosing the right sales channels is essential to effectively reaching your target customers, building brand presence, and optimizing your operational efficiency. Each channel comes with its own benefits and trade-offs, so understanding these options can help you decide where to focus your efforts.

Let’s break down the main e-commerce channels used by entrepreneurs today:

Develop your own website or application

Overview: Building and selling through your own website offers complete control over branding, customer experience and data insights. For businesses with strong customer loyalty or a need for a highly personalized experience, adding a dedicated mobile app can further enhance customer engagement, allowing users direct access to your store on their devices. Together, a website and app create a seamless, immersive shopping experience that strengthens brand presence.

Benefits: With a website, you have full freedom to design a unique brand experience, set your own policies, and directly manage customer relationships. You also have complete ownership of customer data, which is invaluable for tailoring marketing efforts, personalizing the customer journey, and building long-term loyalty. Adding a mobile app can extend these benefits by offering an even more immersive experience. Mobile apps allow for personalized push notifications, loyalty programs, in-app exclusive deals, and other features that encourage repeat business.

Considerations: Developing and maintaining a website—and potentially a mobile app—requires an upfront investment in design, hosting and ongoing marketing to drive traffic and engagement. SEO, content marketing, and paid advertising are often needed to attract customers, making a robust digital marketing strategy essential. Mobile apps in particular require additional resources and are generally more suitable for established brands with a loyal customer base. Encouraging app downloads and consistent use also requires a strong customer acquisition and engagement plan, ensuring that the app provides real value to customers.

It’s essential to remember that handling and collecting customer data is a regulated area—particularly in the EU, where GDPR and other data protection laws require strict compliance to protect customer privacy. Ensuring compliance not only meets legal obligations but also builds trust with your customers.

Amazon

Overview: Amazon is one of the largest online marketplaces globally, offering sellers access to millions of active customers. For businesses focused on physical goods, Amazon provides Fulfillment by Amazon (FBA), which handles storage, packaging and shipping, allowing sellers to outsource much of the logistics.

Benefits: Amazon’s massive customer base and trust factor make it an attractive choice, especially for new sellers looking to expand their reach quickly. The FBA program simplifies logistics, and Prime membership can increase the visibility of products, as Prime members often prefer items eligible for fast, free shipping.

Considerations: Selling on Amazon comes with fees—both for listing and for using FBA. Additionally, Amazon's rules limit the amount of control you have over branding and customer interaction. Customer loyalty is often more to Amazon than to individual brands, which may affect long-term brand-building efforts.

Etsy

Overview: Etsy is a popular platform for handmade, vintage, and unique items, especially suited for artisans, small businesses and niche products like jewelry, art and home decor.

Benefits: Etsy’s community-driven, specialized marketplace connects sellers with a highly engaged audience specifically looking for unique, often handmade items. It’s an excellent option for smaller businesses or solo entrepreneurs focused on creative, unique products with a personal touch.

Considerations: While Etsy provides a niche audience, it’s not ideal for mass-produced goods or services that don’t fit the handmade or vintage categories. Additionally, there are fees for listing and selling items on Etsy, and sellers compete within the marketplace, which may affect visibility without regular promotions.

Overview: Selling directly through social media platforms has gained popularity as they allow brands to reach customers where they already spend significant time. Platforms like Instagram and Facebook offer in-app shopping experiences, and TikTok is quickly becoming a powerful marketing tool for direct-to-consumer brands.

Benefits: Social media allows for high engagement with customers through interactive content, such as stories, reels and live shopping events. These channels also provide powerful targeting tools, letting brands advertise directly to their ideal customers. Many platforms now allow seamless purchasing, letting customers buy directly without leaving the app.

Considerations: While social media is highly effective for brand awareness and engagement, it often requires regular content creation, paid advertising and active community management to maintain visibility and drive sales. Platforms change frequently, so staying up-to-date on trends and best practices is crucial for success.

B2B e-commerce Platforms (e.g., Alibaba, Faire)

Overview: For businesses selling to other businesses, B2B platforms offer wholesale and bulk order capabilities tailored to meet the needs of business customers. Platforms like Alibaba and Faire connect suppliers with buyers seeking large quantities at competitive prices.

Benefits: B2B platforms simplify the process of finding bulk buyers, often providing tools for managing orders, setting wholesale pricing and arranging bulk shipping options. They are ideal for manufacturers or wholesalers who can handle large volumes and wish to access global markets efficiently.

Considerations: B2B selling requires competitive pricing and often involves handling bulk inquiries and negotiations. These platforms typically have buyer-seller matching fees and may require a strong inventory and supply chain management system to fulfill large orders quickly.

Merchant of Record (MoR) marketplaces

Overview: For digital products and services, using an MoR channel can simplify compliance by managing sales, taxes and billing. MoR platforms like Paddle, FastSpring and Lemon Squeezy take on legal and financial responsibilities, making transactions seamless for sellers and buyers alike. Xolo, for example, manages EU VAT compliance for e-⁠residents on sales within the EU, easing the tax process.

Benefits: MoR platforms handle tax collection, filing, refunds, and chargebacks, reducing your administrative burden. They also ensure compliance with international tax regulations, allowing you to focus on product development and customer service.

Considerations: MoR marketplaces usually charge platform fees for handling taxes and compliance. While they offer a streamlined sales experience, they also require familiarity with each platform’s specific policies, such as payout options and product eligibility.

Choosing the right mix of sales channels

Many businesses benefit from a multi-channel approach, which allows you to reach customers on various platforms while diversifying revenue streams. However, each additional channel also requires investment in terms of time, resources and management.

Choosing the right mix of channels depends on your target audience, budget, and the nature of your products. With careful planning and testing, you can find the ideal balance to maximize reach and profitability.

Set your e-commerce business up with Xolo

Navigating the financial and legal requirements of starting an e-commerce business can feel daunting.

That’s where Xolo’s services for e-⁠residents make an impactful difference. We streamline all key tasks—company formation, accounting, tax reporting and compliance—ensuring that you stay on top of the financial side of your business. With Xolo, your focus can remain on business growth, as we handle the intricacies of Estonian regulatory requirements.

Why choose Estonian e-⁠Residency for your e-commerce business?

Estonia’s e-⁠Residency program offers a unique opportunity for entrepreneurs seeking a fully digital business environment. Through e-⁠Residency, you can:

Set up your company online in minutes, simplifying business registration.
Operate remotely with secure digital access to Estonia’s services, such as e-accounting and tax reporting.
Access the EU’s market with fewer regulatory challenges, leveraging Estonia’s modern digital framework.
Join a vibrant community of 120,000 global entrepreneurs who are already part of Estonia’s e-⁠Residency network.

With Xolo and Estonia’s e-Residency combined, your e-commerce business benefits from secure, streamlined services focused on compliance and growth. You’re not just starting a business; you’re joining a global network of forward-thinking entrepreneurs.

Ready to Get Started?

Let Xolo support your journey by making business setup, accounting and compliance simple. Visit our website to learn more about how our tailored services can assist you in building and scaling your e-commerce venture.

Your best step in e-commerce success is just a click away.

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