The availability of the Internet and the connection to the web in the early 90s gave birth to ecommerce. Businesses started to explore the possibility of giving the consumers the convenience of shopping without leaving their homes. Consumers loved the idea of flipping through pages of products (only these were not catalog pages but web pages), pay for goods using their credit card, and then have it delivered to their door in a couple of days.
Ecommerce has long been proved to be a profitable industry with companies such as Amazon and eBay as proof.
Today, anyone can think of products and sell it online. However, one of the things that differentiate a successful ecommerce business from the rest is their accounting practices.
If you are starting an ecommerce business, here are tips on the basic accounting strategies that you should use:
1. Separate your transactions
The best way to keep transactions and records for payments independent from your personal account is to open a separate bank account for your business. Your ecommerce business may start small and you might think it will be easy to manage, but if your vision is for the long term, make it a habit to separate your transactions. This practice will help you in the future with accounting and tax filing purposes.
2. Create a budget
A financial plan is key to your eCommerce business. Forecasting expenses and income influence any businesses success. Even if just projected, it gives you a starting point to adjust to or modify for the future.
A budget is about today and future financial requirements you foresee. Modifying a budget based on unforeseen needs or new requirements is common. The better your budget projections, the better you will cope with the unknowns that will pop up.
3. Establish a bookkeeping system
How do you plan to keep track of daily transactions? If you are starting out in the ecommerce industry, you can build your own spreadsheets to record transactions and your daily cash flow. As your business gets bigger, then you can start to look into accounting software that is designed to handle complex data. This will be useful for your in-house accountant or your accounting firm when reporting your annual taxes to the IRS.
4. Organize your invoices
File your invoices as you record your transactions. Aside from dispute and settlement purposes, your invoices are proof of your business transactions. Unlike traditional paper invoices, most ecommerce businesses issue online invoices so it will be easier and more convenient to store in the cloud.
5. Plan your taxes
Brick and mortar businesses have clear rules for computing and defining taxes. In the case of ecommerce businesses, check existing IRS regulations for online businesses. Any income coming from orders made from abroad are taxable. Take into account allowed tax deductions such as home office expenses. Keep in mind for your budget to set aside money to pay for taxes.
6. Evaluate the status of your business
Evaluate your business strategy on a regular basis. Align your strategy with actual business revenue. Use your revenue reports as basis to determine if the business strategy is working or if it needs to be steered in a different direction. Using right accounting practices will support your business decisions with financial data and will help you make informed decisions on how to further grow your business.