Every eCommerce business, whether it’s run through Amazon, BigCommerce, Etsy, or Shopify, needs a robust accounting system in place to handle the financial aspects.
Ecommerce accounting is a business’s foundation, and a solid foundation is necessary to keep a business thriving and moving. By recording every expense and transaction, business owners get real-time insights into the operations.
This means that they can predict any unpleasant scenarios and take necessary precautions. Accounting for eCommerce businessesallows entrepreneurs to pay their contractors and employees on time.
Not to mention the adherence to state and federal tax laws. Hence, we have compiled the best practices needed to improve eCommerce accounting in this blog post.
Tactics to Improve Ecommerce Accounting
Like every business, eCommerce businesses rely on finance to stay up and running. However, both established and first-time business owners find eCommerce accounting to be daunting.
Online retailers operating in a highly competitive market must leverage eCommerce accounting software to gain an undeniable edge. Keeping track of all the transactions manually certainly becomes overwhelming as the business grows.
By automating certain accounting tasks, eCommerce business owners can save more time. Moreover, they can monitor key performance metrics such as cash flow, customer profitability, total sales, and more using accounting software.
Besides, maintaining different Excel sheets for various customers and contractors is cumbersome. The eCommerce accounting software acts as an integrated solution for efficient financial management.
And, as the business grows, an accountant is likely to come into the picture. Accounting software then becomes even more necessary so that the accountant can utilize the business data.
2. Recording all the Transactions
Ecommerce business owners must be aware of every penny leaving or entering their company. Recording every transaction is one of the best practices required to improve eCommerce accounting.
And, by transaction, we mean all the expenses, fees, sales, and refunds. It helps capture a clear picture of the business’s cash flow. In general, sellers need to track six types of transactions to stay profitable.
Those are:
Assets: These include properties, vehicles, equipment, and company-owned cash
Revenue: Money generated from sales is called revenue
Liabilities: Any financial loan that needs to be paid back to the bank comes under liabilities
Equity: Investment made into a business’s coffers is termed equity
Returns: Money refunded from a product return or due to fraudulent credit card behavior
Expenses: Purchases made by a company to keep the business afloat
Recording these transactions is also important for tax filing purposes.
3. Re-evaluate Your Inventory Practices
Understanding inventory management is vital for every eCommerce business – big or small. It saves them time, money and minimizes waste. Unfortunately, eCommerce inventory management doesn’t get the traction it needs.
Inventory control helps business owners know:
When to re-order (when inventory is running low)
How much to re-order (to determine the exact number of best-selling products to order)
How long a product should stay inside the warehouse (especially important for perishable items)
To re-evaluate inventory practices, eCommerce business owners can run an audit even if they have the best software for inventory management. It can help avoid under-stocking or overstocking issues as well as account for any stolen items.
4. Prepare Financial Statements
Depending on the size of their eCommerce business, sellers can either prepare financial statements themselves or hire an accountant for eCommerce bookkeeping.
Irrespective of who prepares them, we recommend prioritizing it to improve accounting for eCommerce businesses. It would help sellers make sound financial decisions.
Some key financial statements that should be prepared include shareholder equity statements, cash flow statements, balance sheets, and income statements. Together, these statements paint the complete picture of a business’s financial health.
Moreover, these financial statements are also vital for analyzing the performance of a business over a year, quarter, or month.
5. Outsourcing Your Ecommerce Accounting
Running an eCommerce business can become easier if one considers outsourcing eCommerce accounting services. We recommend hiring an accountant or an entire accounts team to manage the finances.
However, that can quickly add the costs considering they need to be paid salaries and benefits. Outsourcing the accounting services to a reliable accounting firm can prove to be more cost-effective.
Ecommerce business owners can redirect the money saved towards growth and expansion.
By following the above-mentioned best practices, sellers can greatly improve accounting for eCommerce businesses. Using these strategies, they can boost their profits while maintaining regulatory and tax compliance.
Recording every transaction, investing in eCommerce accounting software, and outsourcing are some of the best tactics that sellers can use to their benefit.
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