Accountancy Tips For Growing Your eCommerce Business

In the event that you own an online retail store. After all, in order to make educated decisions regarding your company, you need to have the ability to manage both your revenue and your spending precisely. This article will introduce some of the most fundamental accounting ideas that you absolutely must be familiar with.

Do you want to establish an online retail business but feel that the accounting and financial parts would be too much for you to handle? Is it necessary to have a fundamental grasp of bookkeeping to ensure your business's success?

This post will walk you through the fundamentals of accounting that you should be familiar with. We will walk you through the process of keeping tabs on your income and costs, developing a spending plan, and maintaining control of your financial situation. If you have a good knowledge of these principles, you will be able to handle the financial aspects of your e-commerce firm properly.

When establishing an e-commerce company, many factors need to be considered, but accounting is one of the most crucial aspects. If you want to make sure that your business is successful, you need to have a fundamental understanding of accounting and how those concepts relate to your online store.

In order to keep your books in order, we will go over the most crucial ideas you need to know. In addition, we will offer some guidance on how to accurately create financial statements, which will assist you in arriving at prudent choices for your company.

Keeping up with your own bookkeeping could appear insurmountable, but in reality, it's not quite as difficult as you would imagine. To begin, you need to have a fundamental understanding of a few key concepts in order to maintain order in your finances and shield yourself from any difficulties in the future.

This blog article will provide an overview of accounting fundamentals that every owner of an eCommerce firm should be familiar with. If you have a firm grasp of these ideas, you will be able to direct your company's operations with greater assurance and precision.

So, let's get started!

Startup Accounting Tips

1. Review your cash flow

For an accurate budget, you need to be aware of when and where your money is spent and the amount that consistently arrives into your account.

You should start by recording your expenditures immediately because most of these will be recurrent. Take note of the amounts that you spend on:

• Purchases made for the inventory.
• Supplier payments.
• Employee salaries/subcontractors.
• Packaging and handling.
• Postage costs and delivery expenses.
• Costs associated with processing payments
• Business banking.
• Software, mobile applications, and subscriptions
• Hosting for a website.
• Advertising.
• Taxes.
• Refunds/returns.

After that, take into account any one-time costs that were not foreseen. Finally, the total figure you will obtain is your budget baseline, which is a quantity you need to reach each month to be profitable.

Your revenues may go up and down owing to the fact that the amount of sales you make through eCommerce may go up and down depending on factors such as pricing shifts, shifts in demand, seasonality, and other aspects of the market. As a result, you risk having months with negative cash flow, which occurs when your income is lower than your monthly expenses.

This is another justification for developing a financial plan and accumulating more money.

1. Create a weekly budget calculator

If you want to keep a positive cash flow, especially in the early phases of your company's growth, you need to be cautious of every cent that you spend.

Setting up individual "pockets of cash" for each of the numerous types of weekly expenses you incur and then routinely updating this information is one technique to achieve this goal. This way, you will be aware of the whole amount that you have spent, and you will be able to reduce expenditures on things that are not important over the next week.

You may estimate the dynamics of your cash flow by keeping a spreadsheet quite similar to this one, in which you include all of your weekly costs and revenue.

1. Make sure your tax rates are correct for customers

You may have the option to manually add all applicable sales taxes to the checkout form, depending on the eCommerce platform that you use for your business, or you may have the option to have these taxes automatically computed based on the delivery address of the consumer. The second choice is one that is less likely to include errors.

1. Pay estimated quarterly business taxes

It is envisaged that quarterly projected tax payments will be made by all eCommerce enterprises that anticipate having a tax liability of more than $1,000 by the conclusion of the tax year. It determines your obligations based on the most recent return and anticipates receiving payment in accordance with the schedule.

1. File sales taxes

You are required to keep detailed records demonstrating that you have successfully collected sales tax from each and every one of your customers' invoices. In order to meet the deadline, each of these documents will need to be filled out and sent to the tax authority in your area. The timing of the fillings might differ from state to state, although in most cases, they occur around the middle or end of each month.

1. Distinguish Between Returns and Chargebacks

Returns and chargebacks from customers are two distinct types of expenditures that need to be recorded in two separate places.

1. Store return

Return policies for e-commerce shops might range from one to numerous, and this should be reflected in your accounting as follows:

• Credit at the store: Make a note of the first transaction on the accounts payable list in addition to recording it as an expense.
• Full refund: After the merchandise has been returned to your possession, you should enter the transaction involving the refund into the "Returns and Allowances" section of your accounting software and then deduct the amount from your revenue.

1. Store chargeback

Chargebacks occur when a client challenges a transaction with their bank, arguing that the transaction was fraudulent and, therefore, should be reversed. Sadly, so-called "friendly fraud" is responsible for anything from 40 percent to 80 percent of all fraud losses incurred by online retailers.

Put all the chargebacks under the "Returns and Allowances category." In addition, if the chargeback resulted in an additional cost, you should account for it as a company expense.

1. Maintain Accurate Records for Your Ecommerce Store

Accounting is the practice of keeping financial records that present an accurate and full picture of a company's financial situation (for yourself and anyone else who asks).

You are required to keep documentation of all the claims you make due to the fact that you are self-reporting your finances and taxes to the relevant authorities. In light of this, you should make sure to keep the following records for the accounting of your eCommerce business:

• Bills, receipts, and other forms of invoicing.
• cheques that were both cancelled and returned unpaid
• Earlier years' worth of tax returns.
• Forms.
• Statements from financial accounts and debit and credit cards
• Wallets for online payments that provide account statements.
• Keeping track of revenue using your eCommerce platform, such as BigCommerce.

It is recommended that all of these documents be preserved for a minimum of three years.

Seems like a lot? If you can't provide evidence to support your claims during an audit, it's advisable to pony up the additional cash for cloud storage rather than risk getting in trouble with the law.

1. Separate business and personal expenses

Once receiving its Employer Identification Number or EIN, a small business should be one of the first actions it should take: opening a business bank account. This may be done after the small business has obtained its EIN (sole proprietors can use social security numbers). When compared to personal bank accounts, business bank accounts come with a number of benefits, including the following:

• It makes it less difficult to keep track of and provide evidence for company costs to qualify for tax deductions.
• Providing protection against personal responsibility by maintaining financial independence between personal and company accounts.
• Providing the ability for the firm to tap into a line of credit in the event of a shortfall in cash flow

Opening a merchant services account, a checking account, a savings account, a credit card account, and a credit card account allows a business to accept credit card and debit card transactions from clients.

1. Purchase accounting software (and a bookkeeper)

Bookkeeping is primarily focused on the practise of maintaining accurate records of an individual's income and expenses. It is a fundamental component of financial management that provides company owners with the knowledge they require to make informed decisions regarding their businesses and is therefore crucial.

Accounting is not a skill that comes naturally to a lot of people who run their own small businesses. For this reason, it is frequently a prudent investment to hire a person committed to the role or, in the case of smaller enterprises, outsource the function.

Accounting software may automate bookkeeping operations that, if done manually, require a lot of time and are prone to errors. Additionally, accounting software can make it easier to locate all the information required to produce financial statements.

More than half of the individuals who participated in the survey provided feedback indicating that their workplaces make use of cloud-based accounting and finance systems, either partially or entirely. This result is especially relevant when taken into consideration with the fact that cloud-based accounting software is proven to be highly advantageous to small firms.

Even while the vast majority of firms begin with simple accounting software, as they expand and take on more complicated tasks, they may find that they need to upgrade to an enterprise resource planning (ERP) system. When a corporation already possesses an ERP system, it can add modules for various business tasks, which may all be connected to a single database.

1. Maintain precise company records

One of the most important responsibilities a small business owner has is keeping correct records. Financial records can be digitally stored via accounting software, which can also automate a sizable chunk of recordkeeping.

When you file a claim for a tax deduction for a cost, this makes it much simpler to record the amount, time, location, and business purpose of the transaction in question. In general, the laws require that the documents be kept for at least three years, while accountants advocate maintaining them for seven years.

There is a comprehensive list of the kinds of records that a company or other organisation is expected to retain. Nevertheless, the following are some examples of new businesses and small businesses that merit special mention:

1. The term "gross receipts" refers to the money your company generates. The cash register tapes, information regarding deposits (for both cash and credit transactions), deposit information, receipt books, invoices, and forms are all examples of the types of records that correspond to this income.
2. Records include cash register tape receipts, account statements, credit card receipts and statements, and invoices. Expenses are the charges you incur while operating your firm. Cancelled checks and other documents that serve as evidence of payments or electronic transfers of monies are also regarded as records.

Receipt scanners simplify the process of digitising paper receipts and invoices so that they can be easily tracked by automatically mapping the contents of scanned receipts and invoices to predefined fields within accounting software. This allows the software to better utilise the data contained within the scanned documents.

There is a possibility that accounting software may either provide its own mobile app or facilitate the use of an app developed by a third party that enables an employee or business owner to scan receipts using the camera on their smartphone. These applications utilise optical character recognition, often known as OCR, which converts text into code that a computer can read.

1. Recording fixed assets enables one to calculate yearly depreciation as well as the gain or loss that will result from selling the assets.

Asset documents include receipts, statements, and invoices related to credit card transactions, invoices for purchases and sales, statements from real estate closings, cancelled checks or other documents identifying payee, amount, and proof of payment/electronic funds transfers, and so on and so forth.

Purchase-related expenses for intangible assets with a limited lifespan are amortised. On the other hand, other categories of assets, such as current or intangible property with an infinite life, are not subject to depreciation or amortisation.

Quick Accounting Best Practices to Remember

It's easy to feel overwhelmed when faced with those five accounting responsibilities for your online company, especially when you're first starting started.

Keep in mind that you do not have to transform yourself into a financial genius and attempt to build complex cash flow estimates or utilise formulae with several steps in order to determine your profitability index.

Make sure that your bookkeeping is straightforward and to the point:

1. Forecast for major expenses

Maintain an accurate record of all regular account payables as well as an Excel spreadsheet detailing the weekly budget. This way, you'll never be surprised by your fees, and you'll be able to plan around the money you have left over to handle larger expenses, such as a new warehouse facility, increased advertising, or additional inventory.

1. Set money (and time) aside for taxes

If you're not prepared, tax season may be a stressful time. One in three owners of small businesses puts in more than 80 hours of labour every year (the equivalent of two full weeks) to prepare their federal tax returns. Therefore, the time and effort you put into organising and maintaining your records throughout the year will yield a significant return.

As for the funds, you should set aside thirty to forty percent of the revenue your company generates each year to pay taxes at the end of the year.

1. Supervise your inventory management

The retail sector suffers $50 billion in losses each year owing to the immobile inventory. However, you shouldn't add up to those numbers because an unnecessary inventory buildup will have a negative impact on your liquidity and will reflect poorly on all of your assets and your bottom line.

In the same vein, when it comes to raw materials, resist the urge to overbuy until you are certain you will have a need for all the supply. Then, again, the expense of storing everything will cancel out any savings you would have gotten by buying in bulk.

Establishing a minimum and maximum volume of inventory that you can hold to operate operations leanly requires you to base these determinations on your financial plans and forecasts of cash flow.

Typical Ecommerce Accounting Issues to Consider

If you want to become even more proficient at handling your finances, you should avoid engaging in the following behaviours:

1. Putting off reviewing financial statements till the last minute

It is important that the categorisation of expenses not be put off until the end of the month or, even worse, the end of the reporting year. When you have to search through thousands of documents, it is inevitable that you may overlook an essential detail. That may be something trivial, like a deduction that was forgotten to be claimed. Or a significant omission that necessitates the addition of amendments to your tax filings.

What to do instead: Set aside two to three hours once a month to do a bank account reconciliation, after which you will analyse all the financial records, sort them into the appropriate categories, and then organise them.

1. Missing errors (due to the lack of time)

When you are in a rush to complete your books, errors are bound to occur. Your financial estimates can be off, which will lead to monetary losses if you have inaccuracies in your bookkeeping records.

In the event that you do not attend to those, they may transfer onto your tax filings. If this is the case, you will be required to submit an updated tax return. Which, once more, isn't the most enjoyable activity to engage in.

What to do instead: Accounting should be automated to eliminate the possibility of human error and inconsistent results. Hire a chief financial officer (CFO), a certified public accountant (CPA), or an in-house eCommerce accountant after you have a budget so they can assist you with tax reporting.

Best Australian Ecommerce Platforms For Small Businesses

Selecting an eCommerce platform may be a challenging task because of the multitude of moving parts that go into successfully operating an online business. In essence, you will require:

• Web hosting is providing space on a server around the clock for your website.
• The address of the website's domain (unique URL, purchased separately)
• Website builder
• Online payment method
• Functionalities to increase sales and enhance the quality of the website

Platforms referred to as "all-in-one" typically contain web hosting, a website builder, fundamental website functions, and, in some cases, an integrated payment mechanism. However, you will almost always be required to connect the online store to a payment solution hosted on a third-party website.

On this list, you'll find some of the best user-friendly and cost-effective eCommerce systems that are geared for companies that are quite small.

1. Shopify

Shopify is a widely utilised eCommerce platform not just in the United Kingdom, the United States of America, and Canada but also in other parts of the world, including Australia.

Shops who desire an eCommerce solution that includes hosting, a website builder, payment processing, and a large number of tools to customise their online store would benefit the most from using this platform. Shopify offers the biggest selection of possible add-on connectors for online stores, but each one comes with a price tag attached to it.

Basic Shopify and Advanced Shopify are the two primary e-commerce solutions provided by Shopify. There is a significant gap in price between the various subscriptions, however, the level of functionality available is contingent on the plan that is selected. When compared to alternative payment options such as yearly, every other year, or every four years, the monthly cost of a pay-monthly membership is the most expensive.

A percentage fee and a flat fee are charged for each transaction when you accept credit cards using the integrated Shopify Payments system. The more expensive the membership, the smaller the price.

You are also free to interface with a diverse selection of payment processors, including Poli, Zip, and Afterpay, among many others. Nevertheless, a 'penalty' cost of 0.5 percent to 2 percent is applied to the transaction costs incurred through a non-Shopify processor for each and every transaction that is processed through that processor.

There are various features not available on higher Shopify levels but not on the Basic plan, such as more advanced sales reports. You have an option of 6,000+ extra applications and functions to add, too, although many have separate prices. For instance, some of Shopify's website designs are free, but most of their choices range in price from US$140 to US$350.

When all of these factors are considered – and in particular when you aren't utilising Shopify Payments – it's easy for the fees to quickly add up. However, if you're in it for the long term and have steady sales, Shopify is a terrific alternative that can grow with you.

1. Square Online offers a free plan as well as various simple payment options

Small stores, restaurants, and other types of local businesses may all benefit from using Square Online's online store builder.

Perhaps Square is most known for its card readers that do not require a contract and its free or very inexpensive point-of-sale systems. In addition to this, the online shop syncs up flawlessly with the inventory or food menu at your physical location, making it an ideal solution for companies who want to use the same selling platform, both online and offline.

Square Online is comprised of more than just an e-commerce platform. You may utilise payment links, QR codes (for table-side ordering), a virtual terminal for phone bookings, orders for pickup or delivery, and the free Point of Sale app without having to pay any monthly fees.

Square is not just a real all-in-one platform for eCommerce because of its architecture; it is also a true all-in-one platform for any small business that is looking for the simplest and most cheap option for multichannel selling.

The eCommerce capabilities offered by Square Online include product customization possibilities, free shop layouts, site search, and interaction with Instagram, Facebook, and Messenger.

Having said that, the online shop builder is very basic when compared to the other eCommerce systems described previously. Although there are a lot of connectivity choices available for accounting software, takeout delivery systems, and other extra tasks, the site builder only has a few customization options to choose from.

The upfront payment of a monthly or annual membership fee is necessary for Square Online, but there is no contractual obligation. There is a free plan available, but it has very few features and does not permit you to attach your own domain name, thus, it is recommended that you upgrade to a premium plan instead.

The online store is connected to Square Payments, an integrated payment processor that charges a straightforward cost of either 1.9 percent for the Premium plan or 2.2 percent for each transaction. You may link it with PayPal if you have the Performance plan or the Premium plan, however, the costs for each plan are different.

1. Wix – top-notch eCommerce website builder

When compared to other platforms offering similar prices, Wix's capabilities are hard to top. The most advanced plan is AUD 58 per month (price includes GST) and provides you access to comprehensive website-building options as well as priority customer service. Additionally, this plan grants you access to limitless videos on your site and 50 GB of storage for your website.

The number of available eCommerce capabilities is the same across all subscriptions, and users can add more tools and integrations by selecting them from a large variety of Wix's own and third-party applications. However, due to the fact that many of the add-ons require separate subscriptions, this may lead the monthly cost to increase significantly.

The monthly fee for your Wix eCommerce membership will be increased according to the frequency of your payments. There is a discount for paying up to two years in advance, resulting in a lower monthly cost; however, payments are non-refundable.

Wix Payments, which is their payment system, is not yet accessible in Australia; nevertheless, there is a wide selection of online payment systems that interface with Wix. Some examples of these systems are Braintree and Stripe. These are subject to their own transaction costs, and Wix will not apply any additional charges to them.

Wix eCommerce may be simple to use and attractive to the eye, but obtaining assistance from an actual customer support representative is more challenging. On the other hand, Wix provides a great deal of guidance in the form of instructions and explanations of the various capabilities.

However, you will not be able to export your data if you decide to switch to a different website platform at any point in the future. Because of this, the online store that you created on Wix will remain on Wix, and you will be required to create an entirely new website using a different platform.

1. Squarespace – emphasis on simple, stunning web designs

Squarespace is a platform that includes web hosting, a website builder for online stores, and design, all in one convenient package.

You will need to subscribe to either the Business or one of the Commerce plans in order to construct and manage an online store. Many organisations and bloggers utilise Squarespace because of its user-friendliness and attractive design templates; nevertheless, the platform has certain restrictions.

There is a limited selection of third-party connectors available for Squarespace, such as shipping, accounting, and marketing tools. Aside from that, you are able to link with a few of the most important applications, such as Google's tools, various social media channels, and payment processors (Stripe, PayPal and Afterpay). After this, your options are restricted to the pre-installed functions of the platform.

You have the option of paying for your monthly or annual subscription; but if you choose to pay for an entire year at once, you will not be eligible for a refund.

In addition to the costs charged by Stripe or PayPal, Squarespace requires an additional 3 percent of each online transaction from users of its Business plan, which is the most affordable option that includes the ability to run an online store. You will need to subscribe to either the Basic Commerce or the Advanced Commerce plan in order to avoid paying this additional price.

If you are searching for a range of eCommerce capabilities, Squarespace is not the greatest platform to use; nonetheless, it is a good option for online businesses that do not have a large number of items. The themes are often quite simple, and they emphasise amazing pictures significantly. This is an advantage for fashion websites with fantastic product photos.

Wrapping Up

To maintain control of the funds associated with your eCommerce business, you do not need to have any kind of formal accounting training.

You can get a good handle on your accounting and learn to love the practise of analysing your financials if you have the right accounting system in place, a supporting accounting app, and the proper amount of diligence. This is especially true when the insights gained from analysing your financials translate to higher income.