Given the power of technology, eCommerce has become an extremely popular business – and that comes with unique bookkeeping challenges. But with numerous transactions happening daily, maintaining accurate financial records is critical not just to remain compliant with the law but to also make informed business decisions.
Here’s a comprehensive guide to eCommerce bookkeeping practices tailored specifically for your businesses.
The benefits of cloud accounting software
Cloud accounting software will help any business but it’s especially useful for eCommerce businesses.
This type of software is unlike traditional software in the sense that it securely stores your financial data online, which lets you view your data in real-time on any device that connects to the internet. This data can help you adjust your strategies to maximise sales and manage expenses more effectively – no matter where you are.
Crucially, cloud software, like Xero, also allows you to integrate your inventory management, sales tracking, expense reporting, and other functions into one platform on your software to make your bookkeeping simpler and more efficient.
Tracking online sales
Many eCommerce businesses sell through various platforms, including Amazon, eBay, and Shopify, so it’s essential to have a robust system for tracking online sales so you can account for every income stream without condensing everything into one system, which makes data analysis extremely complicated.
To maintain clarity, you may want to create separate accounts or categories in your accounting software for each sales channel. Segregating your sales like this will allow you to assess the performance of different platforms and make data-driven decisions about where to focus your marketing efforts.
Handling multiple payment gateways
As well as multiple sales platforms, many eCommerce businesses must contend with multiple payment gateways such as PayPal, Stripe, and credit card processors – which adds another layer of complexity to eCommerce bookkeeping, as each gateway has its own transaction fees and payout schedules so it’s essential to track these separately.
Online businesses should regularly reconcile the payments they receive from these gateways against their sales records, which will ensure that financial statements reflect the income you’ve earned and help identify any discrepancies or issues with payment processing. It’s also wise to keep detailed records of transaction fees, as they can significantly impact your bottom line.
Managing inventory
Properly managing your inventory is incredibly important for eCommerce businesses: accurately tracking stock levels will help you understand your cashflow while ensuring that you can meet customer demand without overstocking.
It’s therefore important to implement a systematic inventory tracking method that allows you to monitor sales trends and identify slow-moving products. Inventory management software can be extremely helpful, especially when you can integrate with your accounting system to streamline this process. These systems help you keep real-time records of stock levels, and then automatically adjust your financial statements to reflect inventory changes.
Don’t neglect regular physical inventory checks, in which you reconcile physical stock with your financial records and address discrepancies.
Understanding your VAT obligations
eCommerce businesses selling in the UK only have to worry about VAT if they have an annual turnover of £90,000 or more – although there are advantages to registering voluntarily. You must use online software to file your quarterly VAT returns; getting the help of an accountant here is highly recommended given how complex VAT usually is.
For businesses selling to customers abroad, they usually do not charge UK VAT as the tax is levied on goods and services consumed in the UK. Therefore, they may have to follow the VAT rules in the country they are trading in. Make sure to research the tax rules of the country you are trading with or consult with an accountant.
The role of an accountant
When it comes to accounting and bookkeeping, it’s incredibly important to consider hiring an accountant. These professionals will not only ensure compliance with tax laws and regulations but also provide strategic insights to support business growth. They’ll also be able to bookkeeping processes, advise on best practices, and assist with financial forecasting.
By working with an accountant, you can ultimately focus on what you do best — running your eCommerce business — while having peace of mind that your finances are in good hands.
For more information, why not read our eBook, ‘A practical guide to eCommerce accounting for ambitious business owners’. Here is a small snippet: In the world of eCommerce, ambition is key. Much like other businesses, you need to focus on your core functions to achieve your goals and thrive. In this case, we’re talking about your accounts.
Listen, you can’t become a thriving business if you’re struggling to balance your finances. That’s why focusing on the numbers is paramount to your success. Efficient accounting can be the make or break of your business.
If you have a growth mindset, you’ll need to understand just how important accounting is for your eCommerce business.
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