Good accounting makes your job as an entrepreneur extremely easy – it keeps you updated with the real-time scenario of your business, helps you forecast financial estimates and aids you in analyzing and strategizing key business decisions. It does not matter how big or small your business is, if you are in a business you are there to grow. Today may be you don’t have difficulty in managing finances as they are just a few things but later on it can be a problem. Develop a habit of accounting things from today itself so that you don’t have Ecommerce Accounting difficulties in future.
HOW TO KEEP YOUR BOOK-KEEPING AND ACCOUNTING IN ORDER
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1. Don’t mix your personal business with your profession.
You must have heard this advice a lot of time and think that you know it already but you would be surprised to know that many people still do this mistake. Usually, a person thinks that they are very and will easily manage both things side by side but things get complicated eventually and you get up caught in between. As a result, you will need to again set up everything from start and that can cost you a lot of time and money. Not to mention that you have the tax department breathing down your neck while you are doing so. Hence, a strict separation is a must.
2. Track your expenses
When you understand how to separate your business and personal stuff now, you need to start analyzing and planning your expenses. Track every expense that happens in your business. Don’t leave something thinking it’s a small thing everything that is an expense is to be noted. Don’t miss anything to note, it will give problems in Ecommerce accounting in future.
There are five types of receipts that you should pay extra attention to:
- Meals and Entertainment: often meeting and executions are conducted in restaurants and cafés; it is beneficial for business but makes sure that these expenses are documented. On the back of the receipt, record who attended and the purpose of the meal or outing.
- Out of Town Business Travel: Keep a track of all travels and outings done for business purposes. You can either set a fixed budget for this purpose or ask for the employees to submit expense receipt.
- Vehicle Related Expenses: all the transportation used for business purposes should be recorded. You can set guidelines on transportation allowance to manage your finances.
- Receipts for Gifts: all the bonuses and gifts you announce on various occasions are from your business finance itself so, it should be recorded and analyzed accordingly in ecommerce accounting.
- Home Office Receipts: Similar to the vehicle expenses, you need to calculate what percentage of your home is used for business and then apply that percentage to home related expenses.
3. Develop an Accounting System
Before we jump into establishing an accounting system, it’s helpful to understand about bookkeeping too, and how it differs from accounting. Bookkeeping is the day-to-day process of recording transactions, categorizing them, and reconciling bank statements.
Accounting is a high-level process that looks at business progress and makes sense of the data compiled by the bookkeeper by building financial statements.
As a new business owner, you can go for bookkeeping, it is easy and does not require professional skills. You can manage ecommerce accounting for your business by yourself.
1. You can use software to manage your accounts like Tally, Quickbooks or Wave. Alternatively, you could use a simple Excel spreadsheet.
2. You can have a outsource a person to manage your accounts
3. When your business is big enough you can opt to hire an in-house bookkeeper and/or accountant.
4. Save Your Invoices
Saving invoices is a very important task, as invoices are the only proof of monetary transactions that are done from your company’s account. It is not possible for a human brain to remember everything so you need file these invoices. Also, they help in times of disputes.
In e-commerce business all the transactions are done online majorly so, you can take screenshots of transactions and store it separately.
5. Set Aside Money for Paying Taxes
Before evaluating how much tax you need to pay, roughly calculate and keep some money aside for paying taxes only. Paying taxes is a crucial part of your business thus it cannot be neglected. This is beneficial to you as now; you can spend on your other expenses freely without the tension of using your tax money.
6. Investigate Import Tax
If you are in an e-commerce business, it is bound that you will need to import and export your stuff. If you are importing your stuff from some other country, you will most likely have to pay the duties and charges your country impose on incoming goods. Depending on your business you need to calculate and plan how you will import so that it fits your budget too.
Every country has different rules and regulations, investigate taxes accordingly.
7. Establish Sales Tax Procedures
The world of e-commerce has shaken up sales tax regulations and they are admittedly a bit confusing due to location issues. When a customer walks into a brick and mortar retail shop, they pay the sales tax of whatever state or province they make the purchase in, no matter if they live in that city, or they’re visiting from across the world. However, when you sell online, you’re often selling to customers who live in different states/provinces, and even countries.
8. Plan Major Expenses
Always plan your expenses. You cannot just keep on spending as the need arrives. Set your goals and then plan expenses accordingly. The first thing is setting up a budget. As a business owner you know what expenses you can face, so set some money aside for sudden needs.
Always plan your company’s major expenses as these expenses make a major difference in your balance sheet for better ecommerce accounting. By doing so it becomes easy for you to spend as you have a clear idea of what you are doing and what outcomes going to be.
9. Calculate Gross Margins
Improving your store’s gross margin is the first step towards earning more income overall. In order to calculate gross margin, you need to know the costs incurred to produce your product. To understand this better, let’s quickly define both Costs of Goods Sold (COGS) and gross margin.
Cost of goods: this is the incurred cost of producing that product. It includes its raw material cost, labor cost, and packaging and transportation costs.
Gross Margin: This number represents the total sales revenue that’s kept after the business incurs all direct costs to produce the product or service.
Gross Margin (%) = (Revenue – COGS) / Revenue
10. Evaluate your ideas and revenue
After every 6 months do a full evaluation of your strategies and revenue. Do a full check and see whether the strategies you applied are working or not. Based on these reports plan your future strategies and take action accordingly.
The whole idea of accounting is to know the revenue, but when you have evaluated revenue make sure you spend it carefully and aim to earn more next year.