If your goal is to grow your e-commerce merce store, you’ve got plenty of routes to take. There’s always another product or a new marketing strategy out there to help you increase sales and boost your profit margins.
But it’s easy to overlook the basics, like your accounting, when your mind is focused solely on growth. If you want sustainable success — and if you’d like to make all those other growth strategies work for you — you need to have your books in order.
Your e-commerce store runs on data, and you’ll need accurate financial data to help you make the best decisions. That data comes from your accounting system, and there’s a lot you can do to make that system easier to use and more helpful to you as a business owner. Here are four key steps you can take to improve your accounting system and gain deeper insights into the financial side of your business.
Keep Your Books Current
Business decisions come at you fast in today’s market. If you’re like most e-commerce merce store owners, you’re making dozens of decisions every day, and those decisions impact your financial success. You can either cross your fingers and hope you’re making the right choices, or you can base those decisions on cold, hard facts in the form of financial data.
For your financial data to be helpful, it needs to be accurate, and it needs to be current. If your books are lagging behind all the way until tax time, that means you’ve spent all year making key decisions about your business with outdated or incomplete information.
Along with regularly updating your books, it’s important to reconcile accounts as often as possible. Reconciliation is a fairly simple process that involves matching your account balances and transactions against an outside source, like a bank statement. This can help you identify any mistakes made or any transactions that haven’t been recorded yet. It will also point out any bank fees or interest that you may not have recorded on your end.
Leverage Accounting Automation
Thankfully, technology makes it easier than ever to keep your books up-to-date. Cloud-based accounting software can connect to your bank and credit card accounts and pull transactions into your books as they occur.
Whether you’re working with a bookkeeper or accountant or taking the DIY route, you can easily share access with anyone who needs it and work on your books from anywhere with an internet connection. You can streamline like this with popular accounting software like QuickBooks Online and Xero, so there are no more excuses to let the bookkeeping fall behind (Sorry!).
Connecting your bank feeds can help streamline your accounting, but technology can do a whole lot more than that, thanks to accounting automation and machine learning.
Your accounting software can learn your spending patterns and more accurately categorize your expenses each month. It can also automate processes like monthly account reconciliation by matching your bank records with your books. Essentially, smart software is eliminating the need for all that data entry so you can avoid problems caused by human error (not to mention the fact that manual data entry is just a drag).
Track Cash Flow and Profit Margins
To make money in a sustainable way, you need both good profit margins and healthy cash flow. One without the other just won’t cut it.
Profit is the difference between your revenue and your costs. Simply put, you need to make more from your products than you spend on them and you need a big enough margin to cover your operating costs.
It’s possible to have great profit margins and still go out of business because you can’t pay your bills. This is where cash flow comes in. You need to track when bills are going out and when money’s coming in, to make sure there aren’t any gaps. You can also forecast your cash flow to anticipate issues ahead of time.
The Taxman Cometh
One of the biggest issues for any retail business is sales tax. This gets a lot more involved when it comes to e-commerce because you’re selling to customers in several states or even internationally. Some of those locales will require you to register and remit sales tax based on the buyer’s location, while others won’t. So how do you keep it all straight?
It’s well worth consulting with a sales tax professional to get yourself set up correctly. They can help you figure out where you have “Nexus”, meaning which locations you need to collect tax for. Apps like Taxjar and Avalara can be a big help and even a pro may set you up with one of these to keep everything straight moving forward.
With these four pieces in place, your e-commerce merce accounting will be in great shape. You’ll be able to meet your tax obligations, make better business decisions, track the flow of money in and out of your e-commerce shop. And the better you track it, the more you can watch it grow!