Accounting can be a painful necessity, especially for an ecommerce business. 54% of ecommerce businesses come to an untimely end because of mismanaged finances. Now, you can always hand your accounts to an accountant, but that would mean giving a total stranger the financial steering of your business. Are you ready to take that risk in the nascent stages of your business? While you can always hire an accountant for more complex processes, you must know the basics of day-to-day management yourself. After all, it is your business at stake.
But it isn’t as challenging as you think it to be. Moreover, I have formulated a simple guide for you that will cover the accounting basics you need to know to understand your business’s finances. Let us dive right into it, shall we?
1. Get yourself accounting software
Do not make the mistake of using an Excel spreadsheet. Accounting software is a must in this case – an indispensable part. For the ones using Shopify, you will get a bunch of options for accounting apps.
You can use them on a free trial period to assess the best option for your business and preferences. When using the app store, make sure to pick an in-built bookkeeping system that can track sales, cost, and inventory. Trust me; this will make the entire process a lot easier for you. Alternatively, you can use FreshBooks for your e-commerce business.
2. Track your cash flow
To start with, your ecommerce business must operate out of a separate bank account. Tracking the cash inflows and outflows will help you ensure that your business is making ENOUGH money. When you are running a business, things always don’t look like they seem. So, you must track the timing of money going out and coming in each week.
Also, implement these tips to improve your cash flow:
- Don’t pay bills earlier or later than the due date.
- Offer monthly subscriptions to customers for a steady flow of money every month.
- Keep a “Just in Case” reserve in the business bank account.
3. Understand your cost of goods sold
Right at the beginning of your business, figure out your COGS using the weighted average method. As your business expands, you will be able to track how the cost is increasing. Now, there are certain things to understand here about which expenses to consider and which not.
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For example, if you pay your employees per unit of the product, you must consider this part of the COGS. If you pay them a flat hourly rate irrespective of what they make, don’t consider it in the COGS. The more factors keep adding up, the more complicated it gets. To simplify it, link the accounting software to your e-commerce site so that it can track the actual COGS automatically.
4. Calculate all other expenses
Apart from COGS, there are other expenses as well, like salaries, utilities, rest, etc. These expenses that stay constant irrespective of whether you are selling more or less or nothing at all are called ‘fixed expenses’. For example, the monthly rent you have to pay stays fixed whether you sell one product or a thousand pieces. While calculating such costs, always remember that these costs don’t come into your COGS or affect your gross margin. But, since they affect your cash flow and profit, you need to track them anyway.
Some of the common fixed expenses you should be tracking are:
- Property Tax
- Interest on loan payments
5. Figure out your break-even sales requirement
There is no point in running a business that isn’t fetching you enough profit, right? Plus, you wouldn’t want the profit margin to be stagnant. You would like it to flourish. This is why you need to budget and plan the finances of your business. Plagiarism checker If you want to know whether you will be making a profit in the next month or not, you need to ascertain your break-even point.
Your break-even sales amount will show you how much you have to earn to cover all of your costs. But you certainly wouldn’t want to keep it at that – selling and running a business to pay for stuff and having nothing in hand to yourself. To maintain a healthy and consistent profit margin, track how close you are to the break-even point. Here is a guide for calculating the same.
6. Track your sales and profits before tax
Once you know how many units you have to sell to break even, the next step would be to track your sales. This will help you manage your money and give you an early signal of the issue you might be facing. If you see you are running short, you will know you have to do something about it.
Now, for apps and tools, you can link Google Analytics to your e-commerce site to track your sales. This will help you keep up with the tons of accounting rules about revenue. If the variants of expenses confound you, let your accountant take care of this bit. What is important is that you know how to monitor it independently.
7. Set up proper tax rates for customers
If you are something without a finance background, taxes may seem a nightmare. To be honest, yes, they can be pretty complicated. The difficulty can level up if your brand is a global one, and you sell to clients around the world.how to write a dissertation conclusion Also, if you deal with various products and services, consulting a professional would be wise.
For a more independent approach, you can use the e-commerce software to take care of most of it. Make sure to flag a product as taxable. That way, the software will calculate the tax payable amount once a customer puts in their address. For products with tax-exempts, go through these detailed instructions on Shopify to set up exemptions directly in your e-commerce store.
8. Plan for your tax payments
When it comes to tax, it isn’t just about collecting. Your business has to pay taxes as well. Depending on the geographical location from which your company operates, your tax payments will differ. At the basic level, you will have to submit the tax you’ve collected. So, you must know how to set revenue apart from tax.
Again, if you are using Shopify, you will be able to include tax into your sales price and run a tax report for the same. Essay rewriter online This software will tell you how much amount you have collected in taxes, which you can put aside. Another tip: you can open a separate business account to set aside the money you will need to pay out for taxes.
9. Understand your balance sheet
The balance sheet helps you track your business’s long-term financial health and lets you see how it is doing. You can look at the balance sheet as a bigger picture of the income statement. The balance sheet includes equity. Anything that has value comes under assets, like land owned, machinery, cash in the bank. Liabilities are the payments and debts you owe, and equity is the difference between these two.
For example, say you have a piece of machinery worth $80,000, and you still owe $30,000 of it to the bank from which you had taken credit. This means that your equity is $80,000 – $30,000 = $50,000.Always make sure that the equity is more than the liability. This shows that your business is in a healthy position financially.
A basic accounting software can make your life a lot simpler. Use it to manage your cash flow every week. Give time to understand your expenses, sales, and profits. Also, don’t forget to set up your e-commerce site to collect the taxes automatically. Finally, make sure your balance sheet shows that you are in an ‘equitable’ position. These simple steps will help you maintain your business’s financial health and keep it more than afloat. Give it your best shot!
Author Bio: Peter Clarke is a chartered accountant and a financial advisor hailing from Canberra, Australia. Essay writer he is also associated with the academic brand MyAssignmenthelp.com and offers spell checker online accounting law assignment help . In his free time, Peter loves to surf and spend time on the beach.do my economics homework
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