When the year nears its end, e-commerce sellers will look forward to seeing the overall profits they have made through their efforts. Hopefully, when you look at yours, it has reached your goals and perhaps even more. However, if you find yourself wondering where your profit is and why the profit isn't popping up in your bank account, you are not alone. Many e-commerce sellers experience the same issue, and this can leave you confused, even panicked.
Take a deep breath and know that you may have lost your profit, but it doesn't mean your future profits will end up the same. Today, we're going to help you understand exactly where your earnings went and why you did not receive them by discussing three things: the inventory, the balance sheet, and the profit and loss statement.
1. The Inventory
A huge factor in your earnings that you may have failed to account for might be your inventory. When you buy inventory, you are trading your money for the goods. This means that your bank account amount drops. Other purchases like investments into new equipment, computers, and the like also do the same to your bank account. Unfortunately, none of these transactions shows up in the profit and loss statement. Many other factors also impact your cash balance, such as funds from a loan (counted as expense in the profit and loss statement), along with the interest to pay off the loan.
Put simply, things like inventory spend, debt repayment, and more all affect your bank account, making it look like your profits did not appear in your bank account.
2. The Balance Sheet
Often overlooked by business owners is the balance sheet. In the balance sheet, you get to look at the total wealth collected throughout your business' life. It tracks things like fixed assets, cash assets, debts, and more. It also shows the value of your business, tracked and showcased as net income for every year.
To know where your profits went, it is important to understand the balance sheet. When you get money from selling a product, that amount is sent to the bank account. However, if you spent that money to buy something, that money will have gone out. Although seemingly simple, the balance sheet can be a little tough to understand, so be sure to work with your accountant to educate yourself about what the numbers mean.
3. The Profit and Loss Statement
We've mentioned the profit and loss statement earlier, showcasing how some things don't pop up in the statement. The statement itself showcases your sales, cost of goods sold, and operating expenses. The amount resets every new year your business faces. That said, how does the profit and loss statement tell you where your money went?
Simple. Any expense will show up on the statement. If you felt like no profit showed up in your account, delving into the statement can help you identify critical issues that may have affected your earnings. This allows you to take action to solve costly matters to ensure your profits are safe and sound.
If you have yet to review your inventory, balance sheet, and more and are wondering where your profits went, consider delving into them. Understanding what the numbers mean and how they affect your profit can help you quickly pinpoint issues that have eaten up your bank account and, subsequently, your profits. This way, you can plan for the future, ensuring that you do not make the same spending mistakes that will hurt your company profits to ensure you have access to the money needed to continue growing your online company.
The ECommerce Accountant offers advisory services for online stores and influencers in Australia. If you are looking for accountants for eCommerce to help you stay on top of your profits and finances, work with us today!