It’s easy to understand why being a business owner in today’s world is so appealing. You’re facing new challenges on a daily basis, each more exciting than the next. You’re making leads, solving problems on the go. The rush you’re feeling is giving you a strong sense of purpose.
There are some aspects of running a business people don’t enjoy as much, and one of them is accounting. Let’s face it, no one decided to become an entrepreneur for the glamour of writing financial statements or keeping up with the newest tax laws.
On the other hand, accounting is still a key aspect of running a business. And, If you are a small e-commerce business owner, there’s a good chance you are operating with a fairly limited amount of resources. This means that you probably won’t be able to just throw a pile of money at someone so that they could do it for you.
But there is a silver lining to all of this. Getting involved with e-commerce accounting has never been easier. There are a bunch of learning materials available online. Courses, blogs, webinars,… You name it! If you’re willing to learn and put in the work, you can master the accounting skills you’ll need in order to run the financial side of your e-commerce business without a hitch. Think of this article as your stepping stone.
Set Up a Separate Business Bank Account
Sole proprietors are allowed to use personal accounts to conduct their business. In all other cases, opening up a separate business account for your company is a legal requirement. And even if that weren’t the case, it would still be a great first step in the way you organize your finances.
Separating your business accounts from your personal ones will allow you to monitor your expenses with ease. In addition, based on those expenses, you will have a much clearer idea on how to approach filing for your taxes.
Depending on your company’s requirements, you’ll need to open up a suitable bank account, or in fact, several different bank accounts. Learn everything you need to know before opening up your business bank account here!
Organize and Keep Track of Your Records
Bookkeeping is the first and essential step to your accounting. When you get right down to it, you should be keeping track of two things. The money you spend, and the money you earn.
The main focus of your expense tracking is receipts. Aside from them having all the relevant information, receipts are also a confirmation that the transaction has been completed. You can use your incoming invoices as a bonus, in order to plan your future expenses, and stay one step ahead of your finances.
On the other hand, a good system for keeping track of your revenue should be based on invoices.
Invoice is a document that contains details about a specific business transaction between yourself and your customer. Even though they’re primarily used to provide information to the customer, they will give you a clear overview of each and every transaction. This allows you to plan your earnings and calculate your taxes around them.
In order to get the most out of this approach, your invoices should be standardized. A nice and quick way of doing this would be to use a free invoice maker. Remember to label each of them properly and organize them in a way that will allow you to seep through them and find relevant information quickly.
Always make sure to backup all of your files. Physical records will give you a sense of security, but online bookkeeping does have a lot of advantages. After all, the best part about doing accounting for your e-commerce business is that a lot of your records are already online!
Besides receipts and invoices, there are other documents you’ll need to keep track of as well. You can find a detailed list of them here!
Choose the Right Accounting Software
Like with everything in business, there is a way of doing things in a cheaper, more difficult way, or you can do them easier, but you’re going to have to pay a little more. Using basic software like Excel or Google Sheets can go a long way, but only if you’re willing to put the hours in. And even then there are bound to be some limitations.
There are numerous online accounting solutions you can use to optimize your business further. Finding out the right balance between your accounting needs and the number of resources you’re willing to invest is key at this point. Check out this list of top accounting solutions for e-commerce businesses, and see which ones suit you best.
Most of these tools can be connected with your bank accounts, and some can even be directly integrated into your e-commerce websites. These features are a sure way of maximizing the way you use your accounting software.
Prepare for Taxes
Taxes are often a worrisome subject, but by doing each of the previous steps correctly, you’ll be taking stress right out of the equation. Setting up your business account, proper bookkeeping and integrated accounting solutions are the foundation that will allow you to file your taxes with ease. Still, there are a few things that you should consider as well.
Each country has its own set of tax laws you need to be acquainted with. If you’re based in the US, you’ll need to take into account the laws of every state in which you have a physical presence in, which primarily includes property, inventory, employees and business owners.
Keep in mind that many expenses are tax deductible, which is defined by the IRS as expenses “both ordinary and necessary” for your trade or business. Most common business deductible expenses are employee’s pay, retirement plans, rent expense, interest, taxes, and insurance. If you remember to tag your tax-deductible expenses when organizing your records, you will save a lot of time on calculating your taxes.
Another good rule of thumb is to always set aside a portion of your earnings which will help you deal with your taxes. In doing so, you will avoid the additional stress of having to scrape together funds or to rely on payments which can get delayed for some reason and not get there in time.
For more information on how to file taxes for your e-commerce business, check out this detailed guide.
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AuthorBio: Mark is a biz-dev hero at Invoicebus – a simple invoicing service that gets your invoices paid faster. He passionately blogs on topics that help small biz owners succeed in their business. He is also a lifelong learner who practices mindfulness and enjoys long walks in nature more than anything else.