An all-too-common mistake that e-commerce business owners make at the beginning of their operations is that they start off with half-baked accounting processes. Little did they know that it hampers their chances of success in the long run.
While it may not bear the same fanatical weight as or be a feature in as many success story narratives as marketing and sales acquisition, accounting is a vital part of any e-commerce business’s journey to success. Without the required proper care and planning for your business’s accounting practices, your finances can begin to tank quickly. It is a horror story that haunts online businesses more often than one may think.
The problem with fixing your business’s accounting, however, is that the entire function itself is comprised of multiple moving pieces. One of the aspects of your finances that you should start improving in terms of efficiency and effectiveness, is your accounts payable department.
Why your accounts payable department should be the next focus of an overhaul project
Behind every successful business is a maintained set of books and an accounting team that chases after every account that’s payable. Sure, it may be great to see your business’s financial statements on the greener side of the fence, but what’s it worth if you can’t settle your payable accounts?
Without an effective and smoothly running accounts payable department, you’re essentially leaving your entire business’s finances in a limbo where there are certain expenses that still have to be paid off. Fortunately, there are two simple, yet effective ways to make your accounts payable procedures more efficient so you can keep your business’s cash flow as positive as can be:
Make the shift towards accrual accounting
At first, any business owner may easily consider going for cash-basis accounting simply because it’s easier to deal with, there are fewer taxes that need to be declared, and it’s easy to balance with a heavy workload.
Over time, however, choosing the easier way out may not always pay off well because the limits of cash-basis accounting prevent any business owner from seeing what else they need to pay for. The fatal flaw in cash-basis accounting is that the reports never count any pending liabilities that a business needs to take care of. As a result, it creates a skewed perception of how well its finances are doing.
With the help of an accrual-based accounting method, you can keep your financial obligations in check with a record that duly notes what you’ll need to pay at a certain point in time. Aside from providing a much-needed reality check, the accrual-basis accounting method makes it much easier to budget more accurately for greater levels of profitability after a certain amount of time.
Run an M.C.R.F. routine frequently
Once you’ve made the switch over to accrual-basis accounting, the next and final step towards having a more efficient accounts payable process is to follow an M.C.R.F. routine as often as possible.
Measuring your company’s profitability in any given time period
Performing job costing functions
Reducing specific expenses
Performing financial forecasting
Final words
While your e-commerce business’s accounting system may seem like a menial aspect to deal with at first, making a switch over to accrual accounting can save it from an inevitable demise by your accounts payable obligations locked down. By shifting over to accrual-basis accounting and running an M.C.R.F. routine as often as possible, you’ll be able to avoid severe financial mistakes that kill most small businesses at any given time.
For your e-commerce accounting needs in Australia, get in touch with The Ecommerce Accountant today!