E-commerce businesses have unique bookkeeping needs compared to traditional brick-and-mortar stores. With the increasing popularity of online shopping, ecommerce businesses need to track their finances accurately. This article will discuss ten tips every ecommerce business should know to ensure their bookkeeping is in order.
What is E-commerce Bookkeeping?
E-commerce bookkeeping is the process of managing the financial records of an e-commerce business. While the basic structure of bookkeeping is the same across different types of companies, some specific issues and technologies are unique to e-commerce that need to be considered.
Many e-commerce owners and bookkeepers rely on standard bookkeeping software like Quickbooks and integrate it with third-party e-commerce services or integrations like OneSaaS or A2X. However, this is only one piece of the puzzle in making your books e-commerce-friendly. Some unique challenges of e-commerce bookkeeping include managing inventory, tracking sales tax across multiple jurisdictions, reconciling payment processing fees and chargebacks, and handling refunds and returns. E-commerce businesses also often have complex fulfilment operations involving multiple warehouses, drop-shipping partners, and shipping carriers, creating additional bookkeeping complexities.
Overall, e-commerce bookkeeping requires a deep understanding of the unique financial and operational aspects of e-commerce businesses and the technology tools needed to manage them effectively.
Here, we’ll discuss the top ten bookkeeping distinctions between e-commerce businesses and physical stores that you or any bookkeeping service you hire should know to handle your books correctly.
Keep your personal and business finances separate
It’s crucial to keep your personal and business finances separate to avoid confusion and potential legal issues. Use a different bank account and credit card for your business transactions to track your income and expenses accurately. This will also simplify your tax preparation process and help you stay organized.
Use accounting software:
Invest in accounting software that suits your business needs. It will help you accurately track your expenses, income, and inventory and generate financial statements. Popular accounting software for e-commerce businesses includes QuickBooks, Xero, and FreshBooks.
Track inventory accurately:
Maintain an accurate inventory count to know when to reorder products and avoid stockouts. An inventory management system can help you track your stock levels, sales, and purchase orders. Accurate inventory tracking will help you determine your profit margins and make informed business decisions.
Record expenses properly:
Keep track of all your business expenses, including shipping, packaging, and transaction fees. Record them correctly in your accounting software to avoid missed deductions and overpaying taxes. You can also consider hiring a bookkeeper or accountant to manage your finances.
Understand sales tax laws:
Sales tax laws vary by state and country, and compliance with them can result in fines and legal issues. Know your sales tax obligations and register for a sales tax permit in the states you operate. Collect and remit sales tax accurately to avoid penalties.
Reconcile your accounts regularly:
Reconciling your bank accounts, credit cards, and other accounts regularly will help you catch errors, avoid overdraft fees, and ensure your financial statements are accurate. Use accounting software to reconcile your accounts quickly and efficiently.
Keep track of your cash flow:
Cash flow is the amount of cash moving in and out of your business. Keeping track of your cash flow is essential to ensure you have enough money to pay your bills and invest in your industry. Use cash flow forecasting tools to predict your cash inflows and outflows and manage your finances accordingly.
Set up a budget:
A budget is a financial plan that covers your income and spending for a specified time period. Set up a budget for your ecommerce business to manage your expenses, control your cash flow, and allocate funds to growth opportunities. A budget will also help you monitor your business’s financial performance and make necessary adjustments.
Keep accurate records of your sales:
Keep a record of all your sales, including the customer’s name, order details, and payment information. This will help you track your sales performance and analyze customer behavior. You can use this data to optimize your marketing strategy, improve customer service, and increase revenue.
Review your financial statements regularly:
Regularly review your financial statements, including your income statement, balance sheet, and cash flow statement. These statements will help you track your business’s financial performance, identify areas of improvement, and make informed business decisions. If you need to become more familiar with financial statements, consider seeking professional help from an accountant or bookkeeper.
In conclusion, managing the finances of an ecommerce business requires attention to detail, accuracy, and planning. By keeping track of your cash flow, setting up a budget, keeping accurate sales records, and reviewing your financial statements regularly, you can ensure your e-commerce business’s economic success. Invest in accounting software, inventory management systems, and cash flow forecasting tools to manage your finances efficiently. Seek professional help from a bookkeeper or accountant if you need clarification on managing your finances. Proper bookkeeping lets you make informed business decisions and grow your e-commerce business.