Starting an ecommerce business can be incredibly lucrative in today’s market and is a wonderful way for people to make additional money. In fact, for a lot of people, an ecommerce business is a way to make a complete income and can supply additional benefits over traditional job roles.
If you are already a business owner but want to grow your brand, using ecommerce platforms is a fantastic way to reach more customers. With e-commerce, your products are available at any hour of the day and at all times of the year, helping you to make more money through your business account.
Whatever your motivation may be for opening an ecommerce business, you cannot do this alone. With any form of cash flow comes other liabilities, and this is where a lot of store owners fall short.
Ecommerce businesses are subject to accounting tasks like any other form of business and will be given a tax bill at the end of the financial year. This means you need to be able to maintain records of financial data and financial statements, as well as have an understanding of tax planning to ensure the ongoing success of your brand.
Many small businesses fail to keep up with the bookkeeping process and find that without accurate financial records, their business cannot survive. There is a lot of work involved in ecommerce accounting and bookkeeping, which is difficult for store owners to manage on top of everything else they must do.
This is why working with ecommerce accountants like those on our team is the best way to go. Our company will help with the management of all business finances, operating expenses, and tax savings that are required by your business.
We have a lot of experience working with ecommerce businesses in the UK and have a great understanding of how these companies should pay taxes and manage their other liabilities, which is why we offer a range of services. We have worked with all kinds of ecommerce stores over the years and continue to be a leading name in ecommerce accounting.
If you are interested in collaborating with us, you can contact the team today for a free no obligation quote.
What Is Ecommerce Accounting?
Running an online business can take a lot of work as there are many areas you need to manage.
One such area is accounting, which applies to all ecommerce businesses as every business needs to keep track of its financial data. There are various areas of ecommerce bookkeeping that you may already be familiar with based on your experience with ecommerce companies.
For example, you will need to keep track of all business expenses related to your ecommerce business, along with the cash flow. This essentially means that you need to keep track of all your transactions within the business account, as this is required to determine how much of a tax-deductible income you have made.
All the business transactions within your business bank account contribute to the total business’s taxable income, which will be subject to payments at the end of tax season. This applies to every small business and large corporation, both online and off, but the rules can become more complicated when we focus solely on ecommerce.
As there are many ways to run an ecommerce business, whether you are selling through eBay or have a dedicated Shopify store for your brand, the right accounting method will vary.
Various liabilities will also come into play in determiningthe best accounting method for your company, such as local sales taxes and thestate of the company’s financial health.
Our company is a leading accounting service in the UK that has worked with small ecommerce businesses for many years. We have a lot of experience in the world of ecommerce accounting and provide a range of services to our clients to aid with bookkeeping, cash flow, and tax deductions.
If you are interested in collaborating with us, then please contact the team for a free no obligation quote.
Accounting Tips for Ecommerce Business Owners
Managing ecommerce businesses can be a difficult task, and this is made even more complicated when you do not know how to manage accounting.
As a leading ecommerce accounting service, we offer advice to all our clients and continue to support them through ecommerce bookkeeping, accounting software, and ongoing expertise to aid the growth of their e-commerce brand.
If you are just starting with an ecommerce business or want to know what the best accounting system is for your company, then you have come to the right place.
The following accounting basics are the best way to get started managing your ecommerce website and ensure that you are functioning as required by UK law:
Organise Your Bookkeeping Records
While there are various accounting methods out there that can aid with the management of your ecommerce business, none of these will be successful if you cannot remain organised.
As a small business owner, you have a lot of financial statements to hold onto, most of which are essential for tax reporting at the end of the tax season. When it comes to ecommerce accounting, the main task is keeping track of everything that comes in and out of your business bank account, as this can indicate the kind of tax liabilities that will apply to your company.
Ecommerce bookkeeping is the foundation for having proper tax planning conversations in the future, and performing regular bookkeeping tasks now will save a lot of issues and even save money in the future.
You need to remain organised when it comes to all financial reports related to your online store, as any part of your financial history can be questioned when it comes to tax deadlines and what you need to pay.
There is a lot of work that goes into the ecommerce bookkeeping process, including inventory management and cash flow projections.
All of this is required to ensure your company can not only maintain positive cash flow but also operating expenses according to business law in the UK.
Managing your bank accounts and keeping track of all expenses may be something you do not have much time for, which is why many ecommerce entrepreneurs hire bookkeepers or rely on bookkeeping software to do the work for them.
Ecommerce bookkeeping is the foundation of all other aspects of accounting for this kind of business and needs to be done well. With the right tracking of all transactions related to your ecommerce store, all other accounting tasks will be easier to complete.
This is why either hiring professional bookkeepers or using accounting software to streamline the process is the best way to go if you want to stay on top of your business accounts.
Keep Personal Finances Separate from Business Expenses
As we have mentioned, most of the work in ecommerce accounting comes from keeping track of all expenses. This is made even more difficult if you are also keeping track of your personal finances alongside the business.
While many small business owners find it difficult to keep their work separate from their personal life, this should not be reflected in your business accounts.
On a similar note, managing the cash flow statements of your business is something you are responsible for as the store owner, but this should not be done in the same way that you manage your own personal bank account.
Managing the cash flow and business bank account requires anew set of skills because of the liabilities that are present here, whether that is sales taxes, income taxes, or other requirements for your ecommerce business.
Before you can find a better way of managing your business, you first need to separate your accounts. Company owners need to keep their personal and business financial data separate to ensure better management, accurate deductions, and organised financial records.
Track Cash Flow
Cash flow is one of the most important aspects of ecommerce accounting and is required when financial institutions will collect sales tax.
Cash flow is the record of all business incomings, such as sales, and outgoings, such as operational expenses or paying employees. This will be done over specific periods, such as each sales season, and will make it easier for you to track credits and debits if your records are transparent.
These records are the core of understanding the financial situation of your business as well as being able to assess how you are performing. With cash flow, you can monitor sales trends, income, and overall profit margins, which can then be used to set future goals.
You should be able to monitor all spending trends and habits within your company, allowing you to spot the areas that need additional attention or can be cut out to reduce overhead costs.
On every cash flow statement, you should be able to see there occurring payments that apply to your business, such as maintenance fees, e-commerce platform fees, and digital marketing costs, along with the one-off investments.
This is essential information that is required when you pay income taxes, as it will show how much money is present within your company and, therefore, what can be taxed as sales tax or income tax.
As with the organisation of your financial statements, the purpose of tracking cash flow is to make your life as a business owner easier. This can be a way to help you make better financial decisions in the future as you can see the patterns of your work in the past, as well as be able to see where your business can grow.
Track All Other Expenses
Two main forms of tax will apply to your ecommerce business– income and sales tax. The kind of tax you must pay and how much you owe will vary greatly on your expenses, which need to be tracked just as accurately as cash flow.
Some of the expenses within your business do not contribute to your taxable income, meaning being able to identify these can reduce how much you have to pay. Essential items which are required to run your business, such as office supplies, packaging, and even some digital costs, can be written off and do not contribute to your total taxable income.
As there is a lot of work involved in managing your ecommerce accounts, you may want to consider hiring an accountant or working with accounting software to make this easier for you. These are also tax write-offs in most cases and therefore do not contribute to the total taxable income of your business.
Getting better management of your accounts can offer many benefits, as well as coming with the additional perk of being tax-free in many cases. If you need support for accounting, then please contact the team today for a free no obligation quote.
Create An Inventory Management System
Inventory management is another vital aspect of managing your business expenses and should be performed regularly. Performing inventory management is a way of keeping track of stock and the items your business is selling, which can tell you a lot about the kind of money your business is making.
Managing your inventory is not only a great way of seeing sales trends and keeping note of popular products but will also tell you a lot about the financial health of your business.
The liquidity of your inventory contributes greatly to cashflow, and whether your assets are selling relates to the bottom line. This management should cover all forms of inventory, from products to even raw materials, to provide a great understanding of how your business operates, what needs to be ordered next, and what products do not offer a good return.
Inventory management is easier to do with small companies, as there will be low levels of stock, and is, therefore, easier to track. Performing this kind of management over multiple platforms and with various forms of products is where issues can arise, but clear records are required to ensure you are paying the right amount of sales tax.
Accounting software or collaborating with professionals like those on our team can make this task easier and will ensure that you never overpay on sales tax again.
Set A Break-Even Point
The break-even point of your business refers to when the income is equivalent to the costs, and this will differ for all brands.
When organising your accounting records and getting better management of things, you need to identify your own break-even point. This will be useful should issues arise in your business and you notice that you are reaching a break-even point.
Being able to see when your business is reaching this point can lead you to develop solutions and ensure that you maintain positive cashflow from here on out.
All your costs will contribute to what makes the break-even point, including fixed costs, variable costs, and product price margins, and will need to be assessed regularly to keep your business on the right track. Being able to identify when your business may be going down the wrong path can save a lot of money in the long run and is a great thing to do early on in the management of your accounts.
Collaborating with an accountant means this is done from day one. With all our clients, we identify a break-even point and when the accounts will need to be reorganised for ongoing success.
To find out more, contact us today for a free no obligation quote.
What Is the Best Kind of Ecommerce Accounting?
As we have mentioned, a lot of store owners will rely on more services to manage their accounts.
There is a lot of work involved in ecommerce accounting which means most owners cannot work on their own. Whether you opt to hire an accountant or want to work with accounting software, there is no one right way of doing things.
Each ecommerce business is unique in terms of what it sells and how much money it makes, so of course, there will be differences in the way they manage their accounting as well.
If you are just getting started in the management of business accounts, there are two forms of accounting systems that you should be aware of:
- Cash Basis Accounting
Cash basis accounting is a way of keeping track of your accounts by making a new account every time cash moves into your bank account. Whether cash comes in or leaves the business bank account, a new record will be made.
With this kind of accounting system, your books will mirror the transactions within your bank account. This can make it easier to manage your costs at the end of the tax season because you will have a record of everything that comes in or leaves your business.
For example, when it comes to paying taxes, it will be easy to find what sales do not apply to your total taxable income as there will beno record of them. Records are only created when sales are made, or expenses are paid.
While there are some benefits to this kind of accounting, it does not allow for the recording of future receivables and payments. This can make it difficult to forecast the upcoming expenses related to your business because they cannot be recorded until they happen with this system.
However, if you are using the right tools, this should not be an issue. Collaborating with a dedicated accountant like those on our team can also make cash basis accounting easier to manage, and we can work with any system required by our clients.
Contact us for a free no obligation quote.
2. Accrual Accounting
Accrual accounting is often referred to as the traditional accounting system because this is the one that most institutions use for businesses. Anyone who may be interested in the current state of your business’s finances, from investors to lenders, will use this kind of accounting.
Even though it is more widely used, on the surface, accrual accounting can seem more complicated to use compared to the cash basis. This is because, for this accounting system, you will record each transaction when it happens as opposed to when the money enters or leaves your account.
This means you will be recording revenue before you have received the payments for items, for example. All transactions are recorded before the money moves and apply to both payments and debts.
As records are made before money has moved, it can seem like accrual accounting is more complicated than cash accounting, but this does not have to be the case. It can be a great tool for forecasting and working on tax projections as it supplies an accurate representation of the long-term financial standing of the business.
Our accounting company works with both forms of accounting systems, ensuring we can support all ecommerce businesses. We aim to find the best solution for our clients, which is why we offer multiple services and can offer you any accounting system.
To work with us or learn more, please contact the team today.
