Did you know your nonprofit organization can use an eCommerce store to help fund operations?
Not only will selling online help you reach a larger audience of donors, it can also diversify your funding by introducing a new revenue stream. Nonprofit eCommerce ventures represent a valuable source of unrestricted funds—and can cost less to run than many fundraising events.
World Vision is a great example of a nonprofit that’s furthered its vision and goals by making eCommerce all about giving.
So, whether your focus is books, online courses, or branded merchandise, here are some key things to consider when setting up a nonprofit eCommerce store.
Donations vs sale of goods: what’s the difference?
Donations are money or gifts given without the expectation of receiving anything in return. The sale of goods, meanwhile—which includes selling products online—involves the giving of money in exchange for goods or services.
This is an import distinction because, although you can issue tax receipts for donations if your nonprofit is a registered charity, you can’t generally issue tax receipts for the sale of goods.
If your organization doesn’t correctly distinguish between the two, you could inadvertently:
- Issue tax receipts for the wrong transactions
- Get flagged for an audit by the CRA
- Lose your charitable status
Here’s a brief example of donations vs sale of goods.
Let’s say your charity has a fundraising event and sells tickets for $50 each. You can issue tax receipts to attendees for the cost of those tickets, less any advantages gained through their purchase.
If, on the other hand, your charity sells t-shirts as part of its nonprofit eCommerce efforts, you can only issue tax receipts for the difference between what buyers pay for your shirts and their direct cost.
That means, if your shirt costs $10 and sells for $10, you can’t issue tax receipts for its purchase. If your shirt costs $10 and sells for $30, however, you can issue tax receipts for the $20 difference because it would be considered a donation.
Avoiding high eCommerce processing fees
To operate an online store, you’ll need to integrate a payment processor (like Square, Stripe, or PayPal) with an eCommerce platform (like Shopify) so donors can make payments online.
Finding a payment processing tool with the lowest fees will help you avoid having credit card charges (typically 2-4% per transaction) and merchant processing charges (often 10-30 cents per transaction) eat into your revenue.
Stripe, for example, makes discounted processing fees available for nonprofit eCommerce. Alternatively, you could ask your buyers (many of whom will be unaware that credit card purchases trigger a charge) to cover your fees by ticking a box on your store’s check-out page.
Collecting and remitting sales tax
As a rule of thumb, most products and services supplied by charities in Canada are exempt from GST / HST, whereas most supplies provided by other nonprofit organizations are taxable (PST requirements vary by province).
If you provide taxable supplies—and you’re not considered a small supplier—you’ll need to register for GST / HST and remit taxes collected on the sale of goods.
For help determining which supplies are taxable, and which taxes you’ll need to tag on, it’s best to consult your accountant when setting up an eCommerce store. You should also track your transactions closely to ensure you set aside and remit the correct sales tax amounts.
Analyzing your margins
Profit may not be driving your nonprofit eCommerce venture, but examining your monthly and quarterly profit margins will help you decide whether your online store is a meaningful source for revenue generation.
Here’s a quick way to calculate your profit margin percentage:
Don’t forget to include indirect expenses like wages and social media advertising in addition to direct costs like shipping and manufacturing.
Keeping accurate inventory records
Using an inventory management system to track the in-and-out movements of stock is essential for ensuring what’s on-hand matches what’s in your accounting records.
Performing monthly inventory audits will both discourage internal theft and make it easier to maintain sufficient inventory to meet expected sales. Creating budgets and cash flow forecasts, meanwhile, will help you set informed minimum and maximum inventory levels for your online store.
As a nonprofit, it’s important to focus on initiatives that can enhance both your cause and your revenue.
If you’re unsure how to build a nonprofit eCommerce store with a bookkeeping system that can track your success, Enkel can help. Contact us to learn more about our nonprofit bookkeeping services.
