Setting up your own eCommerce store is no easy feat. As an eCommerce business owner, you will be tasked with a never-ending to-do list but what you can’t compromise on is the accounting for your business.
Accounting is the foundation to building a strong and sustainable business. Having a good grasp of it will give you clear insights as to how your business is doing so that you can make concrete plans to help your business grow while ensuring that you can make all your payments on time.
If you’re still intimidated by the process, this guide will give you the confidence to cover all your bases when you manage accounting for your eCommerce business.
As an eCommerce business owner, you’re always looking for ways to boost your income. The first step is to improve your store’s gross margin by calculating the total sales revenue after deducting all the direct costs to manufacture or acquire the product.
This difference between how much you sell your product for and how much you take home at the end of the day is what keeps your business running so make sure that you know your numbers very well.
This may seem like a no-brainer but there’s no point in trying to maximise your profits if you’re not keeping a close eye on your expenditure. Tracking your cash flow helps you monitor the growth of your business and ensuring its survivability in the long run. This is easier said than done so it’s important for you to create a clear system to organise your receipts and other essential records. This brings us to the next point.
It’s always a good idea to separate your business transactions from your personal ones. Having a separate bank account for your eCommerce business helps to keep your records distinct and easier to manage.
Before you open your business bank account, take the time to research the different options available as well as compare the benefits and fee structures. Most business checking accounts have higher fees compared to personal banking so make sure that you know exactly what you’ll owe.
Now that you’ve planned to open a separate business account, let’s establish the difference between bookkeeping and accounting. Bookkeeping refers to the process of recording transactions and categorising them so that you can track the money that goes in and out of the business. On the other hand, accounting focuses on your business progress and builds your company’s financial statements using data compiled by the bookkeeper.
The important thing is that you need to find a bookkeeping system that works for you especially when it involves the tedious process of monitoring the day-to-day transactions of your business.
In the early stages of your business, you may choose to create a simple spreadsheet on Excel to manage your finances but over time, you can consider more advanced methods such as using Xero, an accounting software which can help simplify the process of tracking not only your cash flow but also your inventory making it extremely useful for eCommerce business owners. As your eCommerce business begins to grow, it might be a good idea to focus your time and energy on other tasks rather than handling the accounting yourself.
Xero helps give you visibility on your entire cash flow process while helping to automate tasks that will take you a lot of time such as importing bank transactions and sending invoice reminders. It also stores the data all in one system giving you an instant snapshot as to how your business is faring. You can also choose to open a business account that integrates with Xero to ease the process even further, ensuring smooth and transparent transactions every time.
Running your own eCommerce store can seem overwhelming and intimidating at first but if you sort out your business finances from the very beginning, you’ll have it easier later on. From opening the right bank account that best suits your needs to ensure that you track every single expense, these are the skills that will contribute to your business’s success.
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