Accounting is one of those necessary evils that most people despise. Most business owners would prefer talk about growing their product range or extracting a tooth than worry about their bookkeeping. But, to be honest, there is no way around it.
E-commerce has grown dramatically to become the retail industry's fastest expanding segment in recent years. Understanding some fundamental accounting principles is essential for business owners who wish to be successful.
1. Monitor Your Cash Flow
Your company's goal is to make money. You must track your cash to comprehend just how much money your company makes. (everything that comes in and out of your business) Many eCommerce firms believe that increasing sales is the best method to enhance cash flow; although this is true, there are other options. The first thing to think about is cutting out unneeded spending. Minor cost reductions might have a major impact on your spending. You should also devise some tactics for making on-time payments. For example, be cautious of credit conditions; unless your consumers have a stable credit history, it is advisable to accept money in advance.
You may also enhance your cash flow by bargaining with your vendors for better terms. Longer payment periods or discounts on further purchases might help your company free up cash flow.
2. Determine Your Break-Even Point
The break-even point is the point at which the revenue earned covers all of your business's costs. For example, if your break-even point is $1,000 and you sell $1,000 worth of products, you break even (your costs are covered). If you sell $1,200 worth of products, you have a profit of $200. If you sell less than your break-even point, you have a loss.
To determine your break-even point, you need to know:
The Break-even formula: BEP = Fixed Costs / (Sales Revenue – Variable Costs).
Remember that Sales Revenue is the amount of money you charge for each item you sell. Variable costs are the total costs to you for each item you sell. Fixed costs are costs that do not change no matter how much you sell.
3. Leverage on Accounting and Bookkeeping Systems
Purchasing a dependable bookkeeping system might be one of the finest investments a business owner can make. It enables basic processes to be automated, saving a significant amount of time and effort. Small companies can benefit from software such as Intuit QuickBooks. It is critical to keep the books as up to date as possible. QuickBooks comes in a variety of editions. QuickBooks Online is one of the most popular among small companies. The Plus Version, which includes inventory management, is suited for retail e-commerce firms.
4. Manage Your Inventory
Inventory is frequently the most significant asset type on the financial statement for many e-commerce enterprises. As a result, good inventory management will assure continued profitability while mitigating the dangers associated with carrying too much inventory. When a company has too much inventory, it has cash that is not being used, reducing its cash flow. It is critical to identify the minimum inventory quantity to hold and keep track of it so that the firm can order before it runs out of inventory.
5. Understand Your Taxes
Taxes are intricate and easily avoided; if you offer a variety of items and services, it is best to contact with a sales tax consultant. Check to see whether you're marking taxable items. To keep organised, it is essential to categorise things that must be taxed and those that are tax-free.
Your tax payments are primarily determined by your company's geographical location. As a starting point, suppose that your tax amount will be the same as the taxes you received from your consumers. You must understand that the money you've set aside for taxes is not a part of your revenue. If you don't, you can have a problem when it comes time to pay your taxes.
In order for your e-commerce business to flourish, you need to be aware of the day-to-day operations and profitability. Acquiring this knowledge is an essential part of the e-commerce process. Accounting and bookkeeping are the tools that help you achieve that knowledge.
The ECommerce Accountant offers you the services of a seasoned Gold Coast accountant. Contact us today to learn more about how we help businesses from different industries!