If you’re a small to mid-size business owner, you must manage your books and plan for your business’s financial future. That’s because one couldn’t work effectively without professional accounting skills and a good software tool to track my cash flow.
So, how do you account for these types of transactions, gather customers’ payments, and reconcile your doubts with e-commerce customers?
In this post, we’ll walk you through some basic tips for e-commerce accounting:
1. Keep track of all of your transactions
Great accounting starts with excellent attention to detail. Although your business is e-commerce based, it doesn’t mean all your transactions are invisible.
When you know your cash flow, you can make business projections one month to one year from now. Keeping detailed notes can also work in your favor during tax time.
2. Track your cash flow
You’re running a business because you want to make money. If you want to know how much money you’re making, you need to know how much money is coming in and going out.
Also, sometimes, boosting your sales is only sometimes the best way to increase your cash flow. Reducing and eliminating expenses goes a long way to improving your cash flow. For instance, you can extend credit to customers with excellent credit, those who have done business with you previously, and those who always pay on time.
Another way to improve your cash flow is to develop better payment terms for vendors, like discounts or longer payment terms or options.
3. Invest in software that can handle e-commerce transactions
Are you aware of your e-commerce accounting weakness? Maybe it’s tracking your supplies or sending multiple invoices to customers with outstanding payments.
This may be automating your billing. You and your staff couldn’t remember everything. You can’t scale your business using subpar software or basic spreadsheets to track your finances.
Instead, you can use accounting software to help you avoid these most common e-commerce pitfalls while improving your daily operations and overall business plan. A tool such as WP ERP Accounting provides everything to run your business smoothly. It is a highly intuitive system that makes it possible, even for beginners, to seamlessly work with balance sheets, income statements, ledger reports, trial balances, and more without understanding debits and credits. It allows you to track your expense transactions, create estimations, invoice and receive payments, and a lot more.
4. Properly manage your inventory
Your inventory includes your products for sale and the raw materials used to produce these goods. Any unnecessary inventory buildup affects your liquidity and can hurt your assets.
Therefore, you must keep your inventory in check, deciding on the minimum volume you want to keep. The rule of thumb is to keep the ones that you only need.
The last thing you want is to run out of inventory since you risk losing sales. You don’t want an
an excessive amount to go unsold as well because you’ll be losing money on your end.
5. Prepare financial statements
In the same way, you also need to prepare your financial statements, either a Schedule C attached to your 1040, 1120 for a C corporation, Schedule S for an S corporation, or form 1065 for partnerships.
In either case, the IRS will require these returns to be prepared accurately and filed on time. That’s why we recommend that you work with an accountant, CPA, or tax preparer to help you prepare and file tax returns.
6. Use extensions to automate your accounting process
Starting an e-commerce business, being proficient, and knowing the accounting complexities aren’t the same. Thus, developers have created a lot of extensions to help you automate the accounting process.
Usually, these extensions utilize computer programs incorporating customer behaviors and already entered data via a code that could generate accurate figures and add that data to your
accounting programs quickly and easily.
Most of these extensions usually come for free or at a premium. The right combination of extensions helps you streamline the accounting process to create accurate and easy-to-understand data.
7. Keep your personal and business finances separate
The last thing every business owner wants is to sit down and look up every shopping list or personal transaction to look for one particular piece of their business. To keep things hassle-free, open a bank account for all your business-related stuff.
This keeps things more organized. Your finances will stay in your account, while your business finances will stay in your business account. You don’t have to waste time shuffling through endless business transactions.
Conclusion
So there you have it. These are the seven effective e-commerce accounting tips that you can apply for your small business. Make sure that you keep track of everything, monitor your cash flow, and use good accounting software.
Ensure you follow these tips to avoid stress and hassle during tax time. This also gives you peace of mind to keep everything organized, leaving you more free time to focus on the critical aspects of your business.
Accounting principles are vital in owning a business, so get all the help you need and learn everything you can to manage your business finances and increase your chances of success. Good luck!