Accounting is an essential part of running an e-commerce business. It helps you understand your performance, learn from past mistakes, and improve your profitability. On top of that, it also allows you to convince store investors and lenders that you know what you're doing in running the store.
In order to understand the importance of accounting, it's important to understand the common mistakes that can happen, so you can plan measures that will prevent these blunders. Ultimately, this should provide you with better performance in your e-commerce business.
The Lowdown on Common E-Commerce Accounting Mistakes
Mistake #1: Not Keeping Up with Regular Financial Reports and Data Back-Ups
The first mistake that most e-commerce store owners make is failing to keep a record of their financial transactions. Financial reports are important because they help you keep track of your sales and expenses. You can compare income and expenses and see which parts of your business are profitable and which are not.
Without a record of your financial transactions, it'll be hard to gauge if your business is on track to reach your goals. Without a detailed financial report, it'll be difficult to take actions that'll help improve your performance.
Mistake #2: Forgetting to Make Bank Reconciliations
A bank reconciliation is a process of balancing accounts in an accounting ledger, specifically the cash and bank accounts, which you have with your bank. Bank reconciliations help you reconcile your bank accounts and understand how much money you have in your bank account as opposed to your accounting records.
Not keeping track of your bank reconciliations can affect your financial reports, because your financial records and your bank data will likely not match up. You'll get inaccurate reports, which will, in turn, affect your business decisions.
Mistake #3: Failing to Create a Standard Operating Procedures (SOP)
Standard Operating Procedures (SOP) are your go-to guides for running your business. They help you make sound and consistent business decisions. SOPs are very important in accounting because they help employees and store owners in making sure that accounting is being carried out in the same way for every transaction.
SOPs also help in creating consistency in accounting, and in turn, create a more accurate financial report. Without SOPs, there's no assurance that your accounting will be carried out in the same way for every transaction, which can lead to inaccurate financial reports.
Mistake #4: Not Using a Chart of Accounts for Your Company's Summary of Transactions
A Chart of Accounts is a list of your accounts that you will use in tracking your business transactions. This is a very important thing to have because you can't track your business's transactions without knowing what accounts they will fall under.
Without a chart of accounts, it'll be hard to keep track of your business transactions. This will affect your accounting process and your financial reports.
The Bottom Line: The Importance of a Sound Accounting for Your E-Commerce Business
Poor accounting choices can lead to bad business decisions, which in turn, will affect your e-commerce business's profitability.
To avoid making common accounting mistakes, it's important that you get the right tools in place. These include a chart of accounts, a bank reconciliation process, an SOP for accounting, and a good accounting software system.
These tools will help you keep your e-commerce accounting on track. It will also help you make better business decisions, which will ultimately lead to more sales and more profits.
Where Can You Find the Best ECommerce Accounting Services in Australia?
If you’re looking for a reliable and affordable accountant in Australia, we’re your best option. We offer various services that can improve your venture's profitability rate, so get in touch with us today for a free consultation!