E-Commerce Accounting Tips You Should Know
As an ecommerce business grows, finances become more complicated. All money in and out must be properly categorised, analysed and tax must be declared. Without having a proper accounting system in place, this can become overwhelming for business owners. The success of an ecommerce business is greatly influenced by how you manage your cash flow. Your business may have high sales, however, if your customer acquisition costs and operating expenses are more than total sales volume, your business is not sustainable.
Accounting and Bookkeeping for an eCommerce Business
Bookkeeping and accounting come hand in hand, and one cannot be completed without the other. However, they are different processes and have different end goals. Bookkeeping refers to the day-to-day task of recording company transactions and financial records. This is a daily business activity, and the goal is to keep your business finances documented and organised. Accounting is the process in which you utilise your company’s financial data to make your business more efficient and profitable. An accountant carefully analyses a company’s finances and identifies ways to reduce costs, prepare taxes and grow your business.
Bookkeeping and eCommerce
The most important aspect of bookkeeping is recording all transactions your business makes. When a customer buys a product from your eCommerce channel, the transaction needs to be recorded. Similarly, any time your business purchases something it will sell online that also needs to be recorded.
A return occurs when a customer wants to a return a product to get a full or partial refund. Returns should be recorded in their own transaction category and subtracted from revenue.
It is vital that eCommerce businesses keep track of inventory. It is important for a business to know what the inventory is at any given point during a year, as this helps with budgeting.
Preparing Financial Statements
Financial statements summarise all of your business’ financial information. It is important for eCommerce businesses to review financial statements as they help them make future financial decisions. The four types of financial statements include:
- Income Statements
- Balance Sheets
- Cash Flow Statements
- Shareholder’s Equity Statements.
The Best Option for eCommerce Bookkeeping
As a business owner you may take on the task of bookkeeping for your eCommerce business. However, bookkeeping can be time consuming and overwhelming at times. It is important to have strong bookkeeping procedures in place. Many eCommerce businesses outsource their bookkeeping and use cloud accounting software. This streamlines the process and provides a clear insight into their business’ financial health.
Accounting for eCommerce Businesses
Accounting for an eCommerce business is similar to accounting for a traditional retail shop. However, there are some challenges that eCommerce businesses face. We have outlined several accounting procedures that will help your ecommerce business.
Choose the Right Business Entity
Many small businesses tend to operate as a sole trader or limited company. The way in which your business is set up impacts how you are taxed. Therefore, it is important to choose the most financial advantageous for your company.
Cut Costs & Boost Your Profits
Bookkeeping looks at the day-to-day processes of your business. However, the goal of accounting is to make your business more profitable in the long run. Cutting costs is one of the best ways to improve your overall profitability. Working with a professional accountant can help you identify ways to cut costs for your business and increase profitability.
Having solid financial procedures in place will help you make more informed decisions in relation to your business, helping you grow. Using your balance sheet may help you identify where sales are coming in, and why these are coming in. This may give you an insight into how you can increase profits too.
Small businesses are often impacted by slow periods. Budgeting throughout the year helps you overcome these slow periods. Using financial statements to determine how much money you need to budget will help with expenses when business is slow.
Maximise Your Tax Savings
This is a bookkeeping and accounting responsibility. You may be able to claim tax deductible expenses that your business made, thus, saving you money and increasing your profits.
eCommerce Bookkeeping and Accounting Services
One of the most important tips for small businesses is that you remain organised. As a business owner you may look to outsource these services to remain organised and ensure you have an accurate picture of financial health. If you are looking for assistance in relation to bookkeeping and accounting services, please do not hesitate to get in touch with Gallagher Keane. We provide tailored solutions to many of our clients, helping them grow and reach their business goals. We maintain our entire practise using cloud accounting software, giving business owners a real time insight into their financial health.