An eCommerce business is always a viable option for those who like to deal with a huge amount of goods and sell them off to a wide range of customers. Besides the fact that you virtually have little to no limits with the demographics of your venture, you also have almost an unlimited amount of items to sell.
That being said, the items and target market aren't the only things that you should be aware of; you must also consider using the financial statements to your advantage. Beginners may have a hard time understanding this method, but yes, you can actually utilise them for your eCommerce venture. The following are just a couple of recommendations.
1. The Balance Sheet
Although this isn't a financial statement you will see regularly; it is still fairly common among all eCommerce businesses. This statement is unique in the sense that it is the most detailed of all and includes the net worth of the company. In order to make a profit, you will have to have positive equity, to begin with.
2. The Income Statement
This statement is a bit more common, but it might also intimidate new entrepreneurs. The main reason is that it is divided into two sections – the revenue and the expenses. You will notice that you have a gross profit, calculated by subtracting the cost of goods sold from the sales. At the bottom of the statement, you will see the net profit that is the sales minus the expenses.
Now, this may seem a bit confusing, but don't worry, you can always ask for additional advice from your accountant. The main thing to learn here is that you should always include the following information in your report:
Gross Sales – The amount of money that your company made before any expenses were removed.
Net Sales – The amount of money that your company made after any expenses were removed.
Gross Profit – The amount of money that your company made before any taxes were removed.
Net Profit – The amount of money your company made after any taxes were removed.
3. The Cash Flow Statement
This statement is the most important report for the financial health of your eCommerce business since it will show you exactly where your company is going and its current worth. It includes three main components:
The beginning cash balance.
Cash flow from operations.
Cash flow from investing.
The statement will also show you the actual ending cash balance. The great thing about this statement is that it allows you to calculate your business's cash conversion cycle easily.
4. The Statement of Retained Earnings
This statement basically shows you how much money your company has earned over the years. It also tells you how much of that amount was reinvested and how much remains as your net worth. These are basically the financial statements you will use to determine whether or not your business is doing well.
5. The Statement of Changes in Equity
This statement shows you the net worth of your business at the beginning of a period, at the end of the period, and the closing retained earnings. Basically, the period is looking at your company as a total entity, while the statement of retained earnings is only looking at the money you have saved up in one time period.
Suppose you want to be successful in your eCommerce business. In that case, you will have to use financial statements as a part of your strategy. Make sure you understand the basics and where you can make adjustments as needed. That being said, do not get too caught up in the details to the point where you forget the bigger picture.
As long as you have a good strategy and utilise the financial statements to your advantage, you will succeed in your venture.
If you are looking for an accountant for your eCommerce business that will help with your financial statements, look no further than our experts here at The ECommerce Accountant. We have a wide range of experienced business advisors for online stores and influencers to help them succeed in their careers and livelihood. Call us today and let us get you one of our accountants in no time!