The Basics of Ecommerce Accounting and Online Profit

Many budding entrepreneurs may notice that they are not producing enough revenue. While there could be many factors behind this, many do not realise the importance of learning the eCommerce accounting basics. With these skills, you’ll be able to track the financial aspects of your business much more effectively. Even if you choose to work with an accountant for your eCommerce business, it still pays to know even the basics and understand how accounting works.


Implement accounting software.


When you think about accounting, the first thing that comes to mind are the books you need to balance. However, in today’s modern world, accounting can make this easier. Accounting software can compute the usual things for you, but it can also provide important information, such as lodge tax returns or cashflow management.


The most commonly used programs are Xero and Quickbooks. What’s great about these is that they can be integrated into online platforms, such as Spotify, for easier use. They all come with free trial periods so you can decide which software to invest in.


Keep track of cash flow.


Cash flow refers to the incoming and outgoing money in your business. The best way to track it is to open a separate account for your business. Never use your personal bank account for business-related transactions because it will be more difficult to track every transaction if business and personal transactions overlap. On top of that, the cash flow should coincide with due dates, making it easier to settle them on time.


Understand your inventory.


It is important to know the current status of your eCommerce business. The best way to do that is to perform an inventory count. This way, you can track which items are selling best and which ones you product lines you can drop. Inventory counts also help with shrinkage or the loss of inventory due to theft, damage, admin error, or vendor fraud. Your inventory is what you’re selling and you should never lose track of it.


Determine the Fixed and Variable Costs.


Before we can identify how these types of costs work, we must know their differences.


Fixed costs are expenses that don’t change value based on production level or output. Examples include rent, property taxes, depreciation, research and development, marketing unrelated to revenue, administrative costs, computers, and software.


Meanwhile, variable costs are expenses that change depending on your business’s level of output or production. The variable costs include materials, labour, payment processing, fees, utilities, and sale commissions.


Although the two seem to be closely related to each other, they affect the profit and expenses of the business differently. Ensure that you keep an eye on these costs to help you adjust your selling prices in the future.


Master the Balance Sheet


The most important task is to master is your balance sheet. It is a record of your business’s financial position and overall health. A balance sheet contains your equity, liabilities, and assets. Having a complete grasp of these things can help you determine which route to take. It’s easy to hire people, but as a business owner, it is important to know how to understand a balance sheet.


Conclusion


Putting up a business is a difficult task without the knowledge of accounting. Again, it is easy to hire people to do that part of the business, but it still pays to know the basics just to understand where the business stands financially. If the business grows bigger, you’ll look back and realise how important accounting basics are for a growing business.


The ECommerce Accountant is a young and innovative team of people who have a passion for all things ecommerce. We help build confidence among business owners and help them make sure their finances are organised. If you need an ecommerce accountant, talk to us today.


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