Accounting for E-commerce: Guide for Online Business Owners
E-commerce has gained much popularity in recent past years. Every business is trying to shift towards online platforms, as it is much needed for survival in modern times. The devastating pandemic of Covid-19 has changed the whole scenario of the shopping world. One can buy anything without going to the market. This is very helpful for all but it has especially benefited handicapped persons. From needles to automobiles, you can get everything to your doorstep. According to Statista, retail e-commerce sales around the world is more than 6 trillion dollars. This figure is expected to rise in upcoming years as there are over five billion internet users around the globe. With such huge potential in this industry, online business owners need to have a solid accounting system in place. A reliable system of accounting is extremely vital for accurate record keeping. In this blog article, we’ll provide online business owners with a thorough overview of accounting for e-commerce.
1. Set up a separate bank account for your e-commerce business
It is extremely important for online retail store owners to set up a separate bank account for their business. You must maintain financial segregation between your personal and company accounts. This practice will play a decisive role in the growth of your business. When you have multiple accounts, it will be much easier to track income and expenses. Most online store owners fail in the initial stages
2. Keep track of all income and expenses
It’s essential to keep track of every dollar coming into and going out of your e-commerce company. This will greatly assist you in ensuring that your business runs smoothly. Tracking involves different practices like sales revenue, shipping fees, advertising costs on online platforms, and more. This will enable you to see your company’s cash situation. You’ll be able to identify areas for development that demand additional concentration and attention. According to recent research, more than 36% of small business owners spend 80 hours or more on accounting tasks each year. But, if you find it difficult to manage business and accounting at the same time, consider hiring an online accounting service.
3. Use accounting software
Accounting software can be a huge help in managing your e-commerce business’s finances. Many accounting software options are available, including QuickBooks, Xero, and FreshBooks. These applications enable you to keep track of your earnings and expenses, produce invoices, and make financial reports. They can also help automate some of the accounting processes, which can save you time and reduce the risk of errors.
4. Keep accurate records of inventory
Inventory management is an essential part of e-commerce accounting. It’s important to maintain precise records of your inventory levels and inventory costs. If you manage your inventory efficiently, there are huge chances of success in the early stages of your business. Accurate records will help you to make wise decisions while reordering any stock. It is sometimes very difficult for a new businessman to precisely maintain the records. In such cases, you can use any reliable inventory management software. With its help, you will be able to get rid of tiring manual recording procedures. Being an online business person, it is good to adopt electronic financial practices as there are fewer chances of error.
5. Understand sales tax requirements
Sales tax requirements can vary by state and country. So, it’s vital to know the sales tax regulations that are applicable to the business you own. In the U.S. only five states including Alaska, Oregon, Delaware, Montana, and New Hampshire do not charge sales tax. Whereas, Washington D.C and other forty-five states have a system of sales tax. Sales tax is generally a small percentage ranging between 4-8% of a retail value. Moreover, in most states, you have to register for a sales tax permit which is also known as a ‘sellers permit’. So, you have to understand and follow tax laws to avoid any penalties and huge fines. You can contact us for complete peace of mind.
6. Plan for income taxes
You will have to pay income taxes on your profits as the proprietor of an online store. It’s important to plan for these taxes by setting aside a portion of your revenue to cover the tax bill. To make sure you are utilizing all available tax credits and deductions, you may also use the services of a qualified accountant.
7. Monitor your cash flow
Cash flow plays an extremely important role in the success of any business, and it’s especially important for e-commerce businesses. You must have a reasonable amount of cash available. Because you have to pay for inventory, advertising, and other expenses, while also maintaining a healthy profit margin. Regularly checking your cash flow might help you see possible problems and make necessary adjustments
8. Conduct regular financial reviews
Any e-commerce company must do regular financial inspections. This involves analyzing your financial statements, including your income statement, balance sheet, and cash flow statement, to get a clear picture of your business’s financial health. By conducting regular financial reviews, you can identify areas where you may need to make adjustments, such as cutting expenses or increasing prices.
Remember, accurate accounting is crucial for the success of your e-commerce business. It helps you make informed decisions about your business’s future, avoid financial pitfalls, and stay compliant with tax laws. By investing the time and resources into accounting for your e-commerce business, you can set your business up for long-term success.
In conclusion, accounting for e-commerce is essential for the success of any online company. By following the steps outlined in this guide and utilizing the right tools and knowledge, online business owners can keep track of their finances and make informed decisions about the future of their business. From setting up a separate bank account to conducting regular financial reviews, each step is essential for accurate accounting and long-term success. By understanding the facts and figures related to e-commerce accounting, you can stay up-to-date on the latest trends and make informed decisions about your business’s future.
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