For most business owners, bookkeeping must be done to file income tax returns. But why bother to keep up with it more than once a year? The reason is that ecommerce sellers have unique needs, especially as their sales grow. As your ecommerce business grows, you will need valuable financial insights in order to make critical business decisions.
Although back-office stuff like accounting and bookkeeping might not get you as excited as your main business activity, it is very important. This includes bookkeeping, accounting, tax planning, proper business setup, and other elements of running a profitable business. For most ecommerce entrepreneurs, this means connecting their business to accounting software.
Tips Successful eCommerce Bookkeeping
- Create a scalable system
When creating your bookkeeping system, you need to make sure that it is going to scale and work for you in the long term. For an inexperienced entrepreneur, this can be difficult. Thus, it is recommended to turn to an experienced accountant or bookkeeping services who had a variety of ecommerce clients to help you set up this system.
- Get help from tax professionals
Unless you are a CPA or tax specialist yourself, turn to professional, certified tax preparers to help you file your taxes. This will not only help you to prevent mistakes and possibly audits and fines but will also help you to make the most out of possible deductions. On that note, it is strongly recommended to talk to a tax specialist before tax time because proper tax planning maximizes tax breaks and minimizes tax liabilities during tax filing time.
- Separate business and personal
You should never mix personal and business finances – have a separate business checking account and credit card. It can help you keep your taxes on the right track and build positive business credit, so it is easier to get loans. This will save you from big headaches in the future.
- Run audits
It might seem that audits are the enemy of every business owner, but it is not so. If you hire an independent auditor, he or she will help you to ensure that you or your bookkeeper are doing bookkeeping properly. The auditor will also help you to find any shortcomings in your system and be prepared for a real random audit at any time.
How to Pick an eCommerce Accounting Platform
Most business owners start with a spreadsheet because it is easy, and it is basically free. However, there are many different tools available on the market that are better for your business. The big players in this market are QuickBooks Online and Xero.
These affordable online accounting software automate many tasks and have different apps that you can use to add features based on your needs. For example, an app such as Connex will help you to manage your sale taxes, orders, and inventory right in your QuickBooks account.
There are other players like Sage Intacct, Bench, Wave, and others, but you need to check first whether they have everything your ecommerce business needs, like a cloud inventory system that will be especially important as your business grows.
Do You Need an eCommerce Accountant?
Before you are going to look for an accountant, you need to figure out what kind of need you are trying to fill because you are going to have different needs at different stages of your business.
Stage 1. If you are making under about $20,000 a month in revenue, and you are usually selling on one channel. At this stage, you are trying to figure out what kind of legal formation you should have, what business expenses are deductible, how much you made overall, and how that is going to impact you financially. You will want to get a tax Certified Public Accountant. If you cannot afford a bookkeeper at this stage, do not panic and try to learn the basics yourself.
Stage 2. If you are making under somewhere between $20,000 and $50,000 a month in revenue, ecommerce is probably your full-time job, and you might even have a few people working for you. You might have been doing your own books and now are kind of losing grip on it because you are too busy, etc. You need to get control of your finances, especially if you need to take out a loan. At this stage, you need a real bookkeeper to help you out. Keep in mind that not all accountants have enough ecommerce knowledge and experience.
Stage 3. If you are making over $50,00 a month in revenue, you can still do business accounting using systems like QuickBooks and Xero, which most accountants are comfortable with. At this stage, you are likely to be selling on multiple channels and can be considered an established seller. This is when you will get more sophisticated questions like “How much am I making per channel?”, “What is the highest and fastest selling item?” and “How much profit am I making on those items?.
At this stage, you need to have an accountant who has been specializing in ecommerce for some time and can get and organize the information from multiple channels. A single person is likely to struggle with all these tasks, so you need a group of people – an accounting firm that can handle the different components and deliver a full service for you.