No matter the size of your e-commerce business, your long-term success hinges on bookkeeping and accounting practices. Without a proper system in place, your business finances can get messy quickly. The internet offers a wealth of business growth opportunities and uncertain tax laws. This is why establishing a solid bookkeeping and accounting system is important for the success of e-commerce businesses.
E-Commerce Bookkeeping vs. Accounting
It’s not uncommon for small business owners to tackle their accounting tasks, as most can’t afford a full-time accountant. As your online business grows, so does the complexity of your finances. Balancing your financial and operational responsibilities becomes more complicated. Your bookkeeping tasks will expand to include transaction categorization, invoicing, account reconciliation, balance sheets, payroll management, and account payables and receivables management.
Trying to take care of your accounting tasks will also become more difficult. You’ll be responsible for preparing and adjusting entries, financial audits, tax planning and reporting, financial reporting, forecasting, and risk analysis, and financial statement preparation. There are plenty of accounting software options available that can help small businesses manage their financial data.
Small and mid-sized e-commerce companies can benefit from the outsourced accounting services of an accounting firm. Fully Accountable is an ecommerce tax accounting firm that provides online business owners with better data that aids in business decisions. Working with an expert e-commerce accountant and bookkeeper can help your small business gain deeper insights with a better-managed cash flow. E-commerce companies with high transaction volume can achieve their business goals by investing in the right accounting services that increase the bottom line. An e-commerce accounting firm can provide optimized charts of accounts, forecasting and data analytics, CFO advisory services, financial planning, cash flow management support, and more.
Types of E-Commerce Accounting
There are two types of accounting principles that e-commerce businesses need to practice. Cash basis accounting records transactions that credit your bank account or leave it as an expense. It’s a simple method that’s ideal in the startup phase. All business owners have to do is report money movements based on the bank accounts and see how much cash is available. There’s no need to pay income taxes on any payments that haven’t been received.
The accrual method records transactions as they occur in real time rather than when they clear the bank account. Accrual accounting gives a realistic view of your monthly income and more accurate financial projections. This method focuses more on how much money your business has rather than how much you move. Accrual accounting can make your future finances look more promising than they are, which could pose a risk to your ability to make future payments and meet expenses.
Why Do They Matter?
No matter what e-commerce platform you use for online sales, it’s an online business best practice to create a stable financial system. There are several advantages to having a stable e-commerce accounting system from day one. Bookkeeping and accounting provide a system for all financial records and give real-time insights without interfering with business processes such as payroll and tax audits. E-commerce accounting keeps you current on the logistics of your online business.
You need to have a full understanding of your financial data to forecast your e-commerce business’s finances. A proper e-commerce accounting system helps business owners plan for the future with confidence. Understanding complicated rules and specific tax requirements can be complex. It’s vital as a business owner to have e-commerce bookkeeping practices in place that align with tax compliance obligations.
The more your e-commerce business grows and the higher your transaction volume becomes, it’s a good idea to invest in the bookkeeping and accounting services of an e-commerce accountant.