Accounting 101 for E-Commerce Businesses
Every small business needs a solid bookkeeping and accounting system. Tracking your financials helps you understand the health of your business and ultimately allows you to make decisions based on real numbers, not just feelings.
E-commerce businesses face their own unique set of challenges — retaining customers and finding the right mix of technology, to name a few. So whether your business is exclusively online, or you sell products online and in a brick-and-mortar shop, read on to learn how accounting for e-commerce can help you streamline and grow.
Get your head in the clouds
If you run an e-commerce business, there is absolutely no reason why you should be using anything other than a cloud-based accounting software. If you’re still using Excel or a desktop-based software, it’s limiting you in more ways than you realize:
- Limited access: you can only access your data from the one computer where the software is licensed.
- Infrequent, costly updates: whenever there’s a bug in your accounting software, you may have to shell out cash to update it.
- Hard to back up: If something were to happen to the device where your information is stored…well, say goodbye to all of your financial records..
Cloud-based accounting software can:
- Be accessed 24/7 from any device with Internet access, by more than one person
- Restrict access for different users so they only see the information needed to do their jobs
- Link directly with bank and credit card accounts, inventory, and payroll systems
- offer the peace of mind of always being backed up
Online inventory management
By connecting your cloud-based accounting software with a cloud-based inventory management system, you can streamline your process and make sure that financial information is updated automatically as inventory changes.
Traditional inventory management is complicated usually a tangled web of ordering, receiving stock from suppliers, storing and tracking that stock, and monitoring sales. This means lots of manual data entry into a number of systems.
By integrating a cloud inventory management software with a cloud accounting software, data flows automatically from one to the other, recording revenue and tax, and saving you time and money.
Bookkeeping with a purpose
Bookkeeping is the process of accurately recording all of your business transactions. Accounting professionals then use that information to file taxes and generate reports that help you understand the past and plan for the future.
E-commerce businesses need to approach their bookkeeping with future goals in mind. By setting up your chart of accounts to be tax-ready from the start, you set yourself up for success with sales tax compliance and can identify opportunities for deductions.
Tracking sales tax
If you sell products online, or have multiple fulfillment locations, keep in mind that various Internet sales tax rules may apply to your business. And if you also sell your products through a brick-and-mortar location, separate sales tax regulations will apply to those transactions.
Sales tax can also be tricky business for Amazon FBA sellers. If you store inventory in an Amazon Fulfillment Center, you will owe sales tax in that state.
Make sure your software and accountant or advisor is up to date on all of the particular sales tax rules that apply to your e-commerce business so you can stay compliant and avoid costly penalties.
At Xendoo, we understand the unique challenges e-commerce businesses face. That’s why our Xendoo CPAs stay up to date on all the latest regulations so you don’t have to.