Launching a new online business is a long-time commitment project that takes tons of passion to build. It starts with just an idea that you might have had. But you need perseverance every step of the way to take it to the heights you imagined it would reach.
There is no limit to the amount of time and effort you need to put in it. There are mountainous amounts of small to large details you need to take care of as a small business owner. From the very moment you decide to start the venture off, you need to keep track of everything to make sure everything runs smoothly.
One of the most important aspects of this record keeping is the finances. As your business takes off and experiences one milestone after the other, you’ll need to stay on top of everything. This will allow you to be in control of the financial situation and take more well-informed decisions.
If you are new to the whole entrepreneurship path, you might be a bit lost when it comes to eCommerce accounting and bookkeeping. The following guide will help you identify the basics of eCommerce accounting. Read as we summarize 10 steps that will help you start on the right foot and educate you on the bases you need to cover. These will prove to be of great help and convenience when you are on the path to achieve your long-term goals.
1. Open a Bank Account
This should not come as a surprise. Running a business requires you to set up an account under its registered name to stash all the earnings. So when you have finalized the name and registered your business legally, open a bank account. Having a separate bank account in your business’s name will make thing much easier when you have to pay taxes.
One important thing here is that partnership, corporations, and LLCs are legally required to open a separate account. Also, if you are the sole owner of the business, even though you are not legally obliged to, a separate account is much recommended.
You can start by setting up a current or checking account and then a savings account(s) that will help you organize your money better for tax purposes. Once you have your account set up, you want to get a separate credit card for any credit you want to build. To reiterate, like the bank account, LLCs, corporations, and partnership businesses are required to have a separate credit card. In both cases, this proved helpful in separating business and personal expenses and assets.
A helpful tip here is that you do your research for choosing a bank. Look at different accounts and their fee structures as they are higher than the ones required for personal accounts.
2. Integrate a Bookkeeping System
Bookkeeping and accounting, although closely related, are not the same. While bookkeeping is a more day-to-day recording and categorization of transactions and bank statements, accounting is a compilation of that data and analyzed in a way that it makes sense to create financial statements at the end of the month and year.
This makes it clear that having an efficient bookkeeping system is imperative for maintaining your accounts. You’ll need to choose one that fits your business model. Generally, you have three bookkeeping methods that you can go with. One is the DIY or Do-it-Yourself method where you can use a program like Quickbooks or simple spreadsheet software like Excel to track your transactions.
The second way is to hire an in-house bookkeeper or accountant to do the job for you. But make sure that you have the resources to foot the payroll and benefits of an accountant as they will be your full-time employee. Lastly, you can choose to outsource your bookkeeping and accounting to a firm or hire a part-time accountant.
The decision on which route you want to go depends on your needs.
3. Track Transactions and Expenses
Having a bookkeeping system in place, recording all expenses and transactions is a crucial step you need to start taking right away. Having a record of all your expenses over the expanse of a year is key to an effective and organized accounting system. You’ll be able to monitor your business’s growth more closely and support what you report when you file your tax returns.
This includes keeping track of all expenses and organizing your receipts in a way that makes sense. To do this, you can choose to go with the old manual way and have mounting Filofaxes and other folders. Or you can use a specialized service that is designed to keep all your records in one place.
When it comes to what exactly you need to record, here are a few things to be attentive towards:
- Any meals and entertainment expenses spent to conduct business.
- Travel expenses for a meeting or related business activity. This includes vehicle expenses.
- Gift receipts for anything you might have given to a client.
- Home-related expenses that incur when you use your home to conduct business.
These are only a few examples of what you need to track in your day-to-day expenses. Besides these, one important reminder at this point is regarding mixed expenses. These expenses are those that are used partly for business and partly for personal use. This includes personal cell phones, internet connections, and cars you might use to conduct business as well.
4. Start a Payroll
It might be so that in the beginning you are a one-man show for your business. But eventually, you’ll have to hire part-time or full-time employees. While a payroll system isn’t mandatory for independent contractors, you need one for employees. It allows you to schedule their salaries and make sure that the right amount of taxes is being deducted.
You still need to keep tabs on all independent subcontractors you hire. Make sure that you have a record of hiring them, their names and addresses, the purpose of their hire, and the total amount you pay them. This will help you during tax season.
5. Identify Tax Obligations
Taxation structures vary from country to country and the type of business you run. From general income tax to import and sales taxes, it all depends on the state or province your business operates in. As far as income tax goes, the way your business will be taxed depends on whether it’s a corporation or sole-proprietorship/partnership/LLC.
While corporations are taxed independently from owners, you’ll have to claim income as personal tax return in case of self-employment. You need to withhold tax from your income and remit it in lieu of the withhold as any other employer would.
It’s important that you iron out these details to make sure your taxes are on track.
6. Identify Import Taxes and Duties
This is an important step for all businesses that import products or parts for their products from other countries. Every country has their own set of tax and duties regulations for importing certain products. Since these duties will be a cost you’ll need to bear, you need to educate yourself about these rules.
7. Investigate Payment Methods and Sales Tax
Sales tax can be a bit tricky depending on your business model. For example, if your model is based on brick and mortar, customers are charged the sales tax according to the rate identified by the state. It is a bit different for eCommerce businesses as sales tax regulations for such businesses are confusing. We would recommend that you check in with a professional accountant who’s well-versed in these regulations.
8. Keep Track of Gross Margins
Gross margins are the direct way to improving your revenues and earning more income. This is an essential tip that you need to keep track of in order to make sure that you know what it costs you to produce and sell a product and how much you are earning off of it.
To explain very briefly, gross margin refers to the total number of sales revenue that a business keeps after deducting the cost of goods sold or COGS. COGS consist of all direct costs including labor and materials that it takes to produce the product or service.
Calculating the gross margin will help you identify how much your business is actually profiting at the end of the day. The value will help you make smarter financial decisions as it indicates whether you have the ability to keep the business running or not.
9. Re-Visit and Tweak Your Accounting Systems and Methods
As your business grows, its small eCommerce accounting needs will likely change with it. You may have opted for a simpler, DIY approach in the beginning when the business was small. But now, you might be in over your head with your business expanding. As a result, you might need a more sophisticated program or entirely dedicated person/team responsible for bookkeeping and accounting.
Hence, it is important that you revisit and reassess your accounting method continually. You need to assess how much time you spend on managing your books and whether it’s costing you important time that could be allocated elsewhere. If so, it might be time for you to look for a more suitable method.
10. Understand that Sometimes, It Pays to Pay
What do we mean by this statement? We mean, that small businesses eventually reach a point when they grow out of the DIY accounting approach. The company grows to a point where having a professional handle your accounts whether by hiring an in-house accountant or outsourcing it, can make a huge difference.
Since they have the appropriate expertise in that business area, they’ll be more proficient in managing your records. They’ll have advanced and more effective software to their disposal, making them well-equipped to handle accounts. One huge benefit of having an accountant is that they can find loopholes and tax deductions to benefit your business.
In the end, you’ll be benefitting in more than one way by hiring a professional or outsourcing to an accounting firm. Firstly, you’ll have free time to focus on other business areas or even have some free time. Second, your accounts will be better recorded and your financial statements will be more accurate. Lastly, with the opportunity cost, you’ll be saving money. So it’s a win-win situation.
Finances and accounts are the backbone of growth for every small business.
When you start a new venture, it can be quite overwhelming having to maintain everything. If you follow the steps we’ve listed above, you can have better control of your business, right from the beginning. All these efforts that you put into it will only lead to continued growth and success of your business.
Having an outsourced accounting team can allow you to achieve this growth. Letting them use their expertise to handle the accounts will free up time, which you can focus on other areas of the business and keep everything running smoothly. This can benefit you even more if you have little understanding of the complicated financial aspects of running a business. Outsourced accountants don’t just manage your accounts, but also help you understand how everything works to make better decisions.
If you think that an outsourced accounting service is the answer to your eCommerce or digital business accounting needs and require more information on it, we have a compact guide for you. You can find the guide here for free. The information in this guide will help you understand why outsourcing your accounting will be beneficial for your business.