Everyone puts in some effort when spring cleaning their houses, which makes their homes pleasant places to live. However, have you ever thought of spring cleaning your eCommerce business finances? Very few entrepreneurs do and, as a result, their enterprises keep on thriving and are sustainable.
On the other hand, most businesses fail not because of a lack of money but due to poor financial management skills. Hence, companies need to take some serious financial measures to stay solvent and flourish. Spring cleaning your books is one such way to stay on top of your financials.
The perfect time to make positive changes and “de-clutter” things in your business is right after you’ve wrapped up your taxes for the year. As you go about the process, your goal should be to generate a healthy inflow of cash and control where your profits should go.
Here are some tips and tricks to spring clean your eCommerce business finances:
1. Obtain the Full Financial Picture
Before making any changes, examine your company’s financial position to determine where it currently stands. The best way to study the situation is to do an in-depth review of the financial statements, particularly the balance sheet.
Make sure that your balance sheet is updated at all times. It includes your assets, liabilities, and equity. Assets include everything you own that contributes to generating revenue. Liabilities, on the other hand, include whatever your business owes such as loans, bills, mortgages, etc.
Finally, equity refers to whatever is left behind after all your assets are encashed and liabilities repaid. It belongs to the owners of the eCommerce business. It can’t be stressed more than this information should be readily available. Not only is it essential for the business itself but also critical for external stakeholders such as potential investors and lenders. With the emergence of accounting software, updating this information is easier than ever.
2. Invest in Technology to Manage Your Finances
If you haven’t automated your finances yet, it isn’t too late to take that decision. Given the wide range of accounting software options available today, you may even be better off. A good software package will save you an enormous amount of time and headache in tracking your finances.
They offer an efficient way to manage your financial records and stay on top of your income and expenses. Also, cloud-based accounting systems are a tremendous way to go paperless. For instance, if you select QuickBooks, you’ll experience a significant reduction in the amount of paper moving in and out of your business.
Also, these solutions enable you to manage your bookkeeping remotely. You can access dashboard KPIs, financial reports, and other data from your personal laptop or even your smartphone. Your entire team will be able to join a single platform where you can track their progress and work.
Moreover, you don’t need to hire a professional accountant if you learn to use an accounting solution. When you look for an accounting software package, be sure to purchase the latest version so that it offers most of the features you need. Training is equally important to choose- the one that comes with in-built tutorials and is easy to learn.
3. Switch to Paperless Transactions
Another big reason your business seems to be buried in paperwork is the reliance on paper-based transactions. To get your finances in order, save time, and become more efficient, you need to ensure that your checks, billing, and proposals are processed digitally. This should also lead to added security and a reduction in expenses such as storage costs.
Furthermore, finding information can be a headache when you rely on paperwork. Going paperless means that you have all the data at your fingertips and it may even be accessible from anywhere, any time.
Once you’ve decided to go paperless, the rest of the process is easy. You’re probably already using online banking to make or receive payments digitally, download credit card statements, etc. All you need to do is to integrate your accounting software with your bank and credit card accounts. This will allow you to get rid of paper entirely and obtain electronic check copies, bank, and credit card statements.
While most banks will offer a variety of services to help you process everything online, make sure that the accounting software package you select supports this. You should be able to control user permissions and access to ensure maximum security.
When it comes to paying your vendors, you’re incurring additional costs for paper checks, mailing envelopes, stamps, and some photocopies. There are various online solutions available that allow you to make single-click payments and automate your future payments. This should help you save on the costs and time-consumed between the invoice and the payment and maintain control over your cash flow.
Besides, paychecks and the corresponding paper timesheets and mailing envelopes need to go paperless too. You can do that by requiring your employees to submit their work hours electronically. Based on the automated recordings, they can then receive their pay through direct deposit. Many employee management software packages offer a myriad of services that help you go digital. For instance, they allow employees to change deductions, review pay stubs, etc with a single click, freeing everyone of the hectic paperwork.
4. Catch Up on Your Payments
Review your invoices and bills so that you can pay your lenders and vendors on time. Overdue payments can significantly reduce your firm’s credibility, putting off business entities from doing business with you in the future. The last thing you should do is avoid making payments that are already due.
Taking a fresh start into the new season, look for ways to pay off your payments. If, for instance, you can’t immediately pay off the full sum, consider setting up a payment plan, which allows you to pay off the dues over time rather than paying all at once.
For instance, you bought office equipment costing $4000 for your eCommerce business. Upon receiving the invoice, you can request to pay the amount in monthly installments of $250. However, they’ll most certainly charge interest for such a payment plan.
5. Collect Your Receivables
The more liquid your assets are, the better it is for your eCommerce business’s financial health. If you fail to keep track of your receivables and collect them on time, your eCommerce business can face serious cash flow issues and may eventually become bankrupt. Thus, part of the spring cleaning process is to review your outstanding invoices or those that you haven’t been paid for yet. The Aged Debtors Report can help. Your eCommerce accountant will prepare it for you.
The Aged Debtors report lets you track payments that you should already have received but haven’t. You can track the customers, the amounts receivable from each, and when exactly the payment was due. In other words, you’re “deep cleaning” your account receivables.
Also, when you keep reviewing your outstanding receivables on a regular basis, not only are you able to receive overdue payments but also reduce the chances of non-payments in the future. This is because the process helps you identify clients that take too long to pay and you can be more proactive with them in collecting payments or even choose to stop working with them.
One thing to note here is that if you’re VAT registered, you don’t get to keep all the money you owe. This is because the amounts shown in the Aged Debtors Report will include the VAT, which you will have to remit to the HMRC. Hence, make sure you account for that.
6. Review Your Prices
When spring cleaning your eCommerce business, don’t forget to revisit the prices you’re charging for your products or services. Set high prices and you might lose out on potential customers, while if prices are too low, you won’t be earning healthy revenue. Hence, you need to set the pricing just right to generate a decent return on your investment.
And this is the best time to reconsider the prices. But how do you do this? The best answer to this is to conduct a comprehensive market analysis. Look into what prices your competitors are charging for similar items and observe the entire market.
When revising your prices, be sure to take into account your firm’s profit margin. As for the current situation, find out whether or not you’re earning enough revenue to cover your costs and bring something home. Think about how many items you need to sell and at what price to be able to earn a profit. Depending on your industry, it may be a good idea to conduct a customer survey, directly asking them what prices they’re willing to pay.
7. Devise a Backup Plan
As we head into the future, nothing is uncertain. No matter how sound your financial system looks, having a back-up plan is a must. In fact, the best digital eCommerce accounting software will most certainly come with some sort of data back-up solution. A single power surge, system bug or human error can corrupt even the most genuine solutions.
Hence, review your backup system while spring cleaning your eCommerce business. If you’re using QuickBooks, assess the desktop files make sure they’re regularly back up.
8. Revisit Your Service Agreements
Finally, service agreements are the most overlooked area in business finances. This is often true for eCommerce businesses with automated bill payments set for their suppliers, vendors or lenders. When bills and other dues are being paid on time, it seems unimportant to review or negotiate on the service agreements.
However, to avoid unpleasant surprises in the future, it is imperative to stay informed of the fine print linked with these agreements and take necessary measures.
Keep an eye on the expiry dates of discounts and the specific terms and conditions that can change in the near future. Try to extend the discount periods and negotiate a better deal.
In the bottom line, spring cleaning your eCommerce business finances can be a huge difference between success and failure. Businesses that never bother to refine their activities and practices can never match the capabilities of enterprises that keep strict controls over processes. The above-explained tips and tricks should be of great help to spring clean your eCommerce business finances.