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Running an e-commerce business is completely different from operating a traditional brick-and-mortar venture. You don’t have a physical touchpoint with the customer, which means that convincing them to buy could be tough. At the same time, there are complications related to managing orders, inventory, shipping, and taxes. Another challenge that you will probably come across is related to maintaining your accounts.
In fact, accounting becomes complicated as your e-commerce business grows and thrives because there is so much to manage, from supplier costs to orders, taxes, refunds, logistical expenses, and more. Every single thing has to be accounted for and has accurate records as well. The only solution is to have a good accounting system in place. Here are some tips that can help you in implementing one that keeps you stress-free about e-commerce accounting.
First things first, you need to keep a close watch on the cash flow because money will obviously come in and go out when you are running a business, even if it is not a traditional one. Start by opening a separate account for the business if you don’t have it yet because it will help you keep track of the cash flow. Track the expenses and income on a weekly basis for a clear idea about your finances. Be regular with your payments to suppliers and employees. Make sure that you have a minimum reserve in your business account to cope with an emergency if one comes up.
Related to accounting tips for thriving e-commerce businesses:
The trickiest part of e-commerce accounting is managing the inventory because of the uncertain nature of the business. As a rule of thumb, keep only as much stock as you need. Too much stock can interfere with liquidity while too little can keep you from capitalizing on the demand. Be vigilant about price fluctuations as well because they can affect the value of inventory. Also, ensure that the inventory turnover rate if high because it indicates a thriving business.
Taxes are a matter of concern for any merchant. In fact, they can get complicated if you are running a flourishing e-commerce business. You need to be aware of the tax rates, particularly if you sell diverse goods. Setting aside money for taxes is also important. So tax management becomes one of the most critical aspects of Amazon accounting because only an expert can guide you about how much you need to set aside for paying your taxes on the due dates. This is something that you should absolutely do because filing and paying taxes on time saves you from hassles with the IRS.
Another vital aspect of e-commerce accounting is keeping an accurate and updated record of sales. It is all the more important as proof of operation because you are not running a business in a physical setting. Having proper sales records helps if you are audited at any point in time. But it is easier said than done if you have a booming business. However, you need not print every single sales order and file it physically to manage the records properly. Rather, you can use an order fulfillment software solution to maintain and manage them effectively.
The basic of business accounting is that you should manage your personal and business finances separately. This is something that e-commerce merchants often fail to do because they do not operate from a conventional brick-and-mortar setting. Don’t use business funds for personal reasons, thinking that you can reimburse the money later because it never happens. Moreover, things are likely to get complicated from the bookkeeping perspective as well if you mix personal and business money.
Though financial planning may not sound like a part of accounting it actually is. Estimating the upcoming expenses and setting aside funds to meet them is a smart approach for an e-commerce seller and your accountant can help you with this. As a thriving business, you may need to upgrade your e-commerce store or add to your product line in the future as a part of the upscale strategy. There could also be some unexpected expenses such as stock-outs. It is always good to be prepared with forecasting and planning for future expenses.
Following these tips can definitely simplify the accounting function for your e-commerce business. At the same time, you need to understand that e-commerce accounting differs from conventional accounting. So it is best to hire experts who specialize in this discipline to handle your books and make sure that they are in place.
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