Accounting Tips to Run a Successful E-commerce Business

Are you thinking of starting an e-commerce business? If so, it's important to make sure that you have a strong accounting foundation in place. By following some simple tips, you can keep your books in good order and avoid any tax surprises down the road. This article will give you a rundown of some key accounting considerations for e-commerce businesses.

Anyone who has ever tried to run an e-commerce business knows that it's not as easy as it seems. There are many things to keep track of, from inventory and shipping to taxes and bookkeeping. But with the right accounting tips, you can make sure your e-commerce business is running smoothly and profitably.

It's important to keep your finances in order. Here are some tips for keeping your accounting on track. First, make sure you have a system to track your expenses and income. This includes keeping track of sales tax collected, paying bills on time, and recording any revenue from affiliate programs or other sources. 

Anyone can start an eCommerce business, but not everyone knows how to keep track of their finances. So, if you're looking for tips on successfully managing your books, look no further. This blog post will discuss some accounting basics that will help you stay in the black. We'll also share some strategies for making your business more profitable. So, are you ready to take your eCommerce operation to the next level?

Let's get started!

The Importance Of Bookkeeping For Your eCommerce Business

Whether your business is based on a platform such as Amazon, Etsy, Shopify, or BigCommerce, you should have an effective system to manage the e-commerce business's finances. Bookkeeping should be the foundation of your e-commerce business. 

When you have an effective system of recording all the business transactions – such as income and expenses – you will have a clear insight into how your small business is operating at any given time. Bookkeeping is an essential accounting tool to monitor the income and expenses of your business so that you don't experience any surprises at the end of the month when it's time to balance the accounts of the business.

Once you have an idea of the current income and expenses of the business, it's easy to predict the company's future activities. You will be able to plan better and work smarter under such circumstances. An effective bookkeeping practice is important to prepare the business's tax returns. 

It will save you a lot of stress and time when filing taxes each year. In addition, when you have an effective bookkeeping system, you can easily comply with federal and state tax laws and sales tax regulations. 

In case you wait until the last minute, you may not have enough time for tax planning which may affect maximising your deductions. Hiring a qualified e-commerce accountant in Australia will let you plan and save money on your taxes.

Don’t Neglect Your eCommerce Accounting!

Your eCommerce business can run into short- and long-term issues when you neglect your e-commerce accounting. The biggest short-term problem experienced by most e-commerce businesses is tax issues. 

Every businessman knows that taxes come every year. Not planning is the biggest mistake made by most start-up e-commerce businesses. The earlier you plan for taxes, the less stressful the process. Finding supporting documents at the last minute is not an easy thing to do. 

Supporting documents play an important part in staying compliant with all Australian tax regulations. Inventory planning is a long-term issue experienced by many e-commerce businesses that neglect the accounting part of the business. 

A reliable e-commerce accountant can save you time, money, and stress and help run your business smoothly.

Improve Cash Flow

While you work at expanding your customer base, there are other ways to strengthen your cash flow. First, analyse your outgoings and tighten them up by reducing unnecessary expenses. These could be excess office space, automated services that are no longer used, or printing out office documents that could be stored online. 

Other expenditures that you may consider minor, such as phones, stationery, and computer services, soon add up, so don't disregard their impact. Reassess these and obtain competitive quotes. Keep track of the dates you need to make and receive payments and structure your cash reserves accordingly. If you offer credit terms to customers, ensure they have an excellent credit history.

Track the cash flow

The goal of your firm is to generate revenue. In order to have an accurate picture of how much money your firm makes, you need to track your cash. (everything that is brought into or taken out of the company) Although many eCommerce businesses assume that increasing sales is the most effective approach to improve cash flow, there are other options available.

The first thing that needs to be considered is ways to save money that aren't really necessary. Even minor cost savings might have a significant impact on total expenditures. In addition to that, you'll need to formulate some strategies for making prompt payments. For instance, credit terms are something that should be carefully studied; unless your consumers have a strong credit history, it is best to accept payment in advance from them.

You can also improve your cash flow by negotiating better terms with the companies that supply you with goods and services. Your company can produce extra cash flow, for instance, by extending the payment terms for customers or providing discounts for further transactions.

Calculating how much profit a company in Melbourne generates on a monthly basis is the method that provides the most fundamental insight into the company's overall financial health. You are doing a good job if the quantity of capital that is flowing into the firm is more than the amount that is leaving the business.

Nevertheless, reaching this benchmark will not be a simple task. Cash flow forecasting is one of the many ways in which a book-keeper can assist in improving your company's flow of cash. In addition to this, it is useful in reducing wasteful spending and ensuring that payments are made on time in order to avoid the penalty that is assessed for payments that are made late.

Sending invoices to customers as soon as they receive their deliveries is an additional important step that can be taken to improve cash flow. Follow-up calls should be made after every few days to ensure a steady flow of incoming payments. 

Manage Your Business Expenses

Make sure that the production costs that you disclose on your products are accurate, regardless of whether you manufacture or buy the products that you sell. These include the cost of labour, materials, machinery, and warehousing, as well as the wholesale price for items that are purchased. Rent, utilities, salaries, technology, and marketing are also included in the list of other expenses. These numbers are extremely important for illustrating what is and is not economical.

Employing Accounting Software for the Purpose of Record-Keeping

When it comes to keeping records, most bookkeepers rely on accounting software to do their work. This software keeps track of all the transactions that occur on a daily basis. It is also highly effective in terms of saving time and minimising the number of errors that are caused by human intervention, and it can be adapted to meet the requirements of an online retail firm.

You should not, however, purchase just any piece of software that has the capability of producing financial reports. You should go with the one that comes with a multitude of functions, such as payroll administration, automated invoicing, real-time updates, and so on.

It is possible to synchronise it with the e-commerce website, and it provides support for the creation of tax records and the Business Activity Statement. The business owner won't encounter any difficulties when putting the time saved by this automation to use in the day-to-day operations of the company.

Understand the importance of the break-even point

When your net revenue covers your expenses, you are at a break-even. This is why calculating expenses is critical. If the break-even point is too high, consider raising your prices or lowering expenses such as shipping costs. 

If you are shipping large volumes, ensure you receive the best volume discount from your supplier. Automating parts of your business is another way to increase your profit margin. For example, automatically adding new customer details to your email marketing list can fast-track further sales.

Analyse the break-even point

Your break-even point is the quantity of units that must be sold before you are no longer losing money and can begin to make a profit. You need to take into account your fixed and variable costs, the price of the product, and the contribution margin when figuring out the point at which you will break even (the value obtained after subtracting your variable cost from the selling price).

A provider of accounting services will use the following calculation to determine the moment at which you will be profitable again:

The point at which a business is profitable again is defined as the ratio of fixed costs to the contribution margin, where contribution margin is calculated as average price less variable costs.

Consider increasing your rates or decreasing your variable expenses if your break-even point is high. You can achieve this by increasing your shipping fees, using products with a lower price point, or any number of other options.

A company that engages in e-commerce needs to be aware of the point at which the company's expenditures are equivalent to its income, because any additional cash that comes in beyond this point is considered to be profit.

Through conducting a break-even analysis of the company, the entrepreneur needs to have a clear understanding of how soon they will be able to achieve their goal. A book-keeper can assist you in this area and help you determine appropriate prices for the products.

The study is necessary for establishing monthly objectives and visualising Melbourne's prospective path of investments and business progress in the future. Your book-keeper is going to provide you his recommendations on how to cut down on the variable costs so that you can start producing profits as quickly as feasible.

Balances the Finances

The balance sheet is where you can monitor the long-term health of your business. The balance sheet is created by first computing the total amounts of owner's equity, total assets, and total liabilities. Your company's assets can include things like its stock of products or its collection of office furniture and supplies.

Your duties to other people are known as your liabilities. The description of assets and liabilities splits them up into long-term and short-term categories. Your owner's equity is equal to the sum that is deducted from your total assets and added to your total liabilities.

If the income statement for your eCommerce business shows that it is profitable, but the balance sheet indicates that it is losing money, then. In that case, it's likely that something was input erroneously at a later time. When working with clients who own small businesses, accountants always keep in mind that the only way a balance sheet can be considered accurate is if the assets equal the liabilities plus the equity.

Balance Your Inventory

You don't want to run short on your inventory, resulting in lost sales. But, at the same time, an excess of products can have a negative impact on your cash flow. Setting a minimum inventory level and striving toward a high turnover rate will help you achieve that all-important balance.

Inventory Management

You won't be able to sell anything if you don't have any inventory in stock first. On the other side, needless inventory accumulation may have a negative effect on your liquidity and a negative influence on your financial statements. This is because it reduces the amount of cash available for use in operating the business. Because of this, you need to maintain accurate records of your stock and determine how much of it you want to keep in stock at any one time.

You want to avoid running out of inventory since it would cause you to lose money, but having an excessive amount of inventory that is not sold might be expensive. Keep in mind that it is preferable to already possess what it is that you require. A complete inventory management system will provide you with rapid insight into stock levels and order statuses, providing you the most recent information on your inventory. This will allow you to make better business decisions.

Keeping Inventory Levels Consistent

Bookkeepers are an extremely valuable asset when it comes to ensuring the optimal levels of stock. For instance, a business that engages in e-commerce needs to maintain an optimal inventory level at its warehouse in Melbourne in order to fulfil the orders that have been committed to it and to ensure that it does not miss out on sales as a result of a lack of raw materials, packaging, or commodities.

Additionally, the warehouse should not have an excessive amount of inventory that has been accumulated over the course of the full year because this inventory is susceptible to price swings. If the cost of the raw material goes up, then you will be in a position to make more money as a result of your business.

On the other hand, in the event that it falls, you will suffer a loss because you paid a higher price for it initially. Therefore, check to see that you are not above the stock nor are you short of it.

Reduce Extraneous Expenses

When it comes to reducing wasteful spending that can have an impact on the profit and loss statements, a book-keeper is an important figure to have on your side.

The hosting and maintenance of the website, regular software upgrades, product inclusions, technical costs, warehouse lease, office lease, and utilities, salaries and wages, and other associated expenses are some of the fixed costs that are associated with running an e-commerce firm.

In addition to this, the proportion of sales that contributes to some variable costs, such as the budget for marketing and advertising, the cost of raw materials, packaging, etc., might vary. Finding a warehouse with lower rent and easier access, obtaining a loan at a lower interest rate, and other cost-cutting measures are all things that the accountant may assist with on your behalf.

Keeping an Eye on the Sales

The daily data assist you estimate whether or not you will be able to fulfil the monthly profit goals. This provides you with advanced warning as to whether you may experience difficulties with your cash flow or inventory, allowing you to plan accordingly. In addition, there are online solutions that can be added as plug-ins to websites that are meant to track sales made through eCommerce sites. If sales are not meeting expectations, you should plan additional marketing initiatives well in advance.

Because no firm can survive without successfully selling its products, sales are the most essential component of any commercial enterprise. Because of this, it is extremely important to always be aware of how many goods you have sold at any one time because doing so enables you to determine whether or not you have achieved your monthly goals.

Reaching the point where we are profitable again is a prerequisite for successfully completing the goals. For instance, if you have set a target of selling 5,000 things per month but have only sold 1,000 by the end of the second week, you will need to design an efficient marketing strategy in order to assist you in meeting your objective.

You must, however, take precautions to ensure that the total amount spent on advertising does not surpass the revenue garnered from product sales. Your bookkeeping service provider shouldn't have any issue maintaining an accurate record of the transactions. You may also connect the Google Analytics tool to your online store so that daily data is sent to you without any further effort on your part.

Sales are the most vital aspect of every company because an organisation simply cannot continue to exist without moving its wares to customers. It is essential to be aware of the quantity of things sold at any one time because this provides insight into whether or not you have been successful in meeting your monthly objectives.

The achievement of the goals is, in turn, predicated on reaching the break-even point. As a result, if you have determined that you want to sell 500 products each month but by the end of the second week you have only managed to sell 100 of those products, you will need to devise an aggressive marketing strategy that will assist you in reaching your objective.

However, it would be beneficial to make certain that the money spent on advertising does not exceed the revenue achieved from product sales. After that, it will be simple for your book-keeper to keep track of the sales. You may also connect the Google Analytics tool to your online store to ensure that the data you collect each day is accurate and free of any mistakes.

Income Tax In Addition To GST

Your e-commerce company needs to get registered for the Goods and Services Tax (GST), which is a consumption tax that is collected by increasing the price of the product by 10%. You are eligible to make a claim for the Goods and Services Tax (GST) that was paid by other businesses on your purchases.

Because the Commodities and Services Tax (GST) does not apply to all of the goods that are bought and sold, your book-keeper can be an invaluable resource in assisting you with claiming GST and applying it to products. For instance, there are no GST obligations associated with exports.

Every three months, a tax return that is also known as the Business Activity Statement must be submitted to the ATO in order to pay the GST (BAS). The Goods and Services Tax (GST) is calculated by deducting the tax that was paid on purchases from the tax that was collected on sales over a specific time period.

The amount of income tax owed is determined by multiplying the amount of taxable income by the tax rate that applies to the company in Melbourne for the duration of the financial year. A book-keeper is helpful in carrying out these calculations and contributes to the production of reliable reports.

Hiring An eCommerce Accountant In Australia

When your e-commerce business starts making a lot of sales, you may find it difficult to manage the cash flow without the help of a qualified e-commerce accountant. 

It would help if you had an accountant who specialises in the industry to handle all the accounting and bookkeeping functions of the business. The right accountant will keep you in compliance and show you how to make more money with less effort. In addition, your tax returns will be taken care of by such a professional.

Many e-commerce businesses prefer to work with a third-party accounting service in Australia than hiring their accounting professional. Compared to the salary and perks of a full-time accountant in Australia, you only pay for the services you need when working with a third-party accounting company. 

That way, you can save a lot of money while letting a highly qualified accounting professional handle all the accounting functions of your e-commerce business. The most important thing is to find a reputable and experienced third-party accounting service in Australia to handle the accounting functions of your e-commerce business.

Conclusion

The majority of e-commerce businesses in Melbourne are in desperate need of competent and efficient accounting services due to the meteoric rise in popularity of online shopping. Keep the aforementioned advice in mind if you want to build a successful enterprise out of your company in a timely and cost-effective manner.

Businesses that are involved in e-commerce are expanding at an exponential rate, and the majority of these enterprises require bookkeeping in Melbourne that is both effective and professional. Therefore, keep in mind the principles that were described above in order to rapidly and affordably turn your venture into a successful entity.