One of the hardest parts of starting up an ecommerce business is figuring out exactly how to maintain your accounting. As your business grows, so will your ecommerce accounting needs. What seemed pretty simple at first – just expenses and profits – becomes more complicated as you consider supplier costs, taxes, customers, refunds, logistical solutions, and more. All those things must be accounted for, and accurate records must be kept.
When you have a good ecommerce accounting system in place, it will make your job as an ecommerce business owner much easier. You can stay updated with the overall big picture of how your business is doing, forecast the future, and strategize for your next steps with your online company.
Let’s look at some basic steps you need to take to have good accounting procedures in place.
Separate Your Business and Personal Finances
This may seem like stating the obvious, but there are many ecommerce business owners that fail to do it. Don’t get caught up in using business funds for personal reasons (and vice versa) with the intention of reimbursing the business; it’s a slippery slope. Comingling business money with personal can get really complicated, really fast. You will feel the pain when tax time rolls around and you and your accountant try to figure out exactly what belongs where. What business structure should you use for an ecommerce business? The two likely options are:
- Sole proprietorship – There is little to no separation between you as a person and your business as an entity. You can be personally held responsible for the legal and financial debts of your business.
- Limited liability company (LLC) – Your personal liability for the debts of your business is limited. Your assets are more protected because you and your business are considered two separate entities.
There are other business structures to consider, but for most ecommerce businesses, either sole proprietorship or LLC will work just fine.
Keep Your Sales Records
You need to have proof of just about everything you do in the operation of your business. Keeping your sales records provides that proof in the event that you are audited. It doesn’t mean that you print out every sales order and physically file it away. Most online businesses these days save things electronically on the cloud. Using an order fulfillment solution, like ours here at ecomdash, will help you store the sales orders and help with ecommerce accounting.
Plan for Major Expenses
This step may seem easier said than done because it’s often hard to know what major expenses are coming up. There are some that you can plan for though. For example, you may know that within a year you will need to upgrade your computer system or pay to add a warehouse to accommodate your business growth. Begin considering these types of things now and figure out how much you should save to cover them. For an ecommerce business, preventing unexpected stock outs and planning purchase orders is a particularly important part of expense planning. Using restock forecasting reports in ecomdash, as well as low inventory alerts, can nearly eliminate the risk of stock outs and oversells.
Set Money Aside for Taxes
It’s a good idea to set up an account where you will keep money for paying taxes. This is important because it’s very easy to dip into money that you are saving for taxes if you have a financial crisis or haven’t planned for major expenses (see above). Believe me, when it comes time to pay taxes, you will not be sorry you did this. Owing the IRS is not a position you want to put yourself into because it is often hard to dig out of. You can talk to your accountant to determine how much you should be setting aside.
Much of the operation of your ecommerce business can be made easier and more efficient with the use of technology. As mentioned above, an order fulfillment system is just one example. There are many other solutions that can help you in just about every area you can imagine, from multi-warehouse inventory management to dropship management, and shipping tools to integrated ecommerce accounting software. Take advantage of the help that these kinds of systems offer. It will make your job easier and it will free up your time so you can focus on the growth of your business.
When you are choosing an integrated accounting system for ecommere, be sure to find one that integrates with all your other systems. QuickBooks Online, for example, integrates with ecomdash so that you don’t have to worry about entering inventory and invoice information into a bunch of different programs. All your data is in one convenient location.
Maintaining accounts for your online business doesn’t have to be complicated. If you follow the above steps as you get started, stay organized, and employ the help of an accountant if you find you need one, and you will be in great shape come tax time.