Updated: Dec 12, 2019
If you have an ecommerce platform and online business, chances are your shopping carts are starting to pile up online, and your bank account is getting fat with all the transactions. How do you go about dealing with your finances as an online retail store? Manually sort out numbers and do the math yourself? Input all the numbers and make use of an Excel spreadsheet? Or hire someone who can do your accounting for you?
You need proper accounting, particularly if you’re in the ecommerce business. Accounting entails a lot of areas—financial reports, taxes, planning for growth & more. It is a systematic process of recording, measuring, and communicating financial information and transactions. Along with all of that comes proper bookkeeping, which is essential for recording your financial transactions and keeping track of your money.
That said, an ecommerce business requires the use of both accounting and bookkeeping. If you have been in the ecommerce business landscape, for sure you have all these in place already. However, if you have just started venturing into this particular niche, here are some accounting tasks you need to take into consideration first.
To begin with, you need to choose a business entity for your ecommerce platform. A business entity is basically the legal form of your business. Examples of business entities include sole proprietorships, partnerships, or corporations. You have to assess what kind of business you’re running, what your future business plans are, and consider whether you co-own your business with others or not. All these determine the type of business entity you ought to select.
Next to consider is choosing the type of accounting method to utilize for your business. You should know that there are two ways to handle your accounting. First, there’s the cash method of accounting, where you instantly record transactions the moment money enters or leaves your business.
Second, there’s the accrual method, which records transactions the moment they occur. For instance, a third party vendor sends you an invoice. With the cash method, you only record the expense after you send the vendor the money. Meanwhile, the accrual method will require you to record the invoice even if you haven’t made the payment yet.
Transaction Recording and Category
Recording the cash flow of an ecommerce business is paramount. When you see the revenue your business earns, it’s imperative you record it. The same thing goes for your outgoing expenses if you need to spend money on obtaining supplies. With accounting, you can either manually import this information from your online bank account or make use of accounting software for automatic import. Once these transactions are on the books, they need to be categorized. That said, the two main categories are income and expenses.
Cash Flow Statements
It’s important as well to check your cash flow statements on a weekly or monthly basis. Monitoring these transactions regularly will help you know how much money you actually have to work with. With proper accounting, it can certainly make a great difference for your ecommerce business.
Finally, recordkeeping is an essential facet of accounting. After all, the accounting will be based on all business records—from bank statements, to credit card statements, down to the receipts. Without proper recordkeeping, chances are you won’t have a back up reported in your books, particularly if you get audited.
Without accurate financial information, your accounting will be erroneous, which will have huge repercussions on your business decisions and your ecommerce business as a whole. That said, you may need to hire a bookkeeper, particularly if your ecommerce business grows and becomes more complex.
If you’re looking for an ecommerce accountant in Australia, get in touch with us today for a free consultation!