As your eCommerce business starts to grow, you may encounter differences in how you balance your books. While the principles of accounting remain the same regardless of your business, an eCommerce brand has extra expenses to balance and account for. Use this guide to gain a better understanding of eCommerce accounting and what it means for your money.
Understanding the basics of eCommerce accounting
One of the first things that business owners ask when they start an online company is what is eCommerce accounting? This refers to the money management and tracking of the expenses and income related to your online business. For example, if you sell an item for $100, you don’t automatically have $100 in profit. Once you take away the cost to build the product, the shipping, the marketing costs, and any other expenses, your profits are much lower.
Ecommerce accounting factors in the sales income for your business while also tracking other expenses and costs to help you understand your profits. With this information, you can take steps to make your business more successful.
Accounting and bookkeeping are different.
One of the biggest misconceptions about finance is that an accountant and bookkeeper do the same thing. While both are important for your eCommerce business, they do have different roles. A bookkeeper balances the ledger by tracking every expense and source of income to your business. For example, they track invoices that vendors send you while also keeping an eye on your sales. They will balance the books and provide financial reports on the health of your business.
An accountant will analyze your books and provide insights on how you can improve your business. For example, your accountant will identify that your gross margin is low and highlight a few ways to increase your profitability. They will also help you file your taxes and complete other financial requirements to operate. In some small businesses, one person can serve as both the accountant and bookkeeper.
eCommerce has different expenses than brick-and-mortar locations
Many of your brick-and-mortar expenses are static. If you have a physical shop, you will pay rent each month to operate. You will also pay a flat fee for the internet and can estimate the monthly costs of labor to hire employees. However, the costs of an eCommerce business are more variable.
Each sold item comes with a shipping cost that can vary depending on where you send it. You may have to pay commission to affiliate links or have discounts on certain items because of online coupon codes. Your bookkeeper has to sort through all of this. Bringing on a financial expert can help you establish clear finances for your eCommerce business. They understand the industry best practices and can take steps to increase your cash flow.
Good accounting can save time
Your ultimate goal with setting up accounting systems is to save time so you can focus on your eCommerce company. When you have good systems in place, you can easily review your balance sheets and cash flow statements without spending hours combing through receipts and invoices. A bookkeeper can sort through these documents for you and generate reports.
As a business owner, you need to spend your time making high-level decisions. You don’t want to waste hours of your day trying to get financially organized.
The world of eCommerce can allow small businesses to sell their wares across the country – if not across the world. However, the accounting that comes with this arm of business can be daunting for new entrepreneurs. Take steps to secure your finances with healthy accounting systems and a clear understanding of cash flow.