The Most Important Strategies In Accounting To Help Boost Your E-commerce Business

The accounting process can be extremely draining for some people.  The majority of business owners would do anything other than to focus on the checks and balances of the business. But as we all know, accounting must be done. 

In the current market, e-commerce is quickly gaining traction, and this year, 2020, it is expected to grow over $5 trillion in sales.  Therefore, if you want your e-commerce site to be fruitful, you need to know basic accounting. 

Manage Your Finances

Making money is one of the reasons people start a business, however, it is essential for you to observe and manage where the money goes and how much profit you make.  While you may think you need to sell more products to receive more cash there are other ways to increase your capital.  You can do this by cutting back on certain expenses and insignificant purchases.  You should also try to implement more on-time transactions. For instance, it is always better for the client to make an immediate payment, rather than taking things on credit, as we may not know their credit history and would probably not be able to pay for the items.  

Improving your finances can also be done by speaking to your vendors and arranging better contracts with them.  For example, you can ask for more discounts on items bought and more time to pay them for their service. This will assist in creating more finances for your business. 

Are You Spending More Than What You Are Making? 

You need to know what your break-even point is for your business. This is basically the number of items you should sell, versus the number of costs you spend on running the business. This will help to determine if your business is profitable or not.  Your break-even point is determined by subtracting your overall expenses from the price you sell your products.  

Below is the formula: 

Break-even Point = Fixed Costs/Contribution Margin

Where Contribution margin = Average Price – Variable Costs  

You can increase your prices or lower your variable costs if you have a high break-even point, this can be done by buying materials that are inexpensive, raising the price on delivery, and more. 

Do Your Checks And Balances

To follow how well your company is doing you would use your balance sheet to do this.  Your balance sheet will include your liabilities, your equity, and your assets.  Assets are valuable items that your business owns, like equipment or stocks.

Liabilities are where you credit another business or person.  In addition to this, you can either define assets and liabilities as short-term or long-term and by subtracting the assets from the liabilities this will result in the business owner’s equity.

Having a balance sheet will help to point out any errors in your statement of revenue and expenses. Your statement of revenue and expenses can state that your e-commerce company is making money however, your balance sheet might tell a different story.  You may have entered incorrect information in your balance sheet, as the only way for it to be accurate is for the assets and liabilities and the business owner’s equity work out to be the same. 

Controlling Your Inventory

 Having stock is important as it helps to keep your business afloat, but having too much stock can affect the availability of your liquid assets and will look bad in the books.  You need to keep track of inventory as too much inventory can be a burden on your pockets and too little will make running your business ineffective.  You should only keep what you need.  That is why having software that manages your inventory is important. Programs like Cin7 will give information on how much inventory you have for the day and how long it will last for and how many order placements you have.  

Keep Up with Your Taxes!

Each product and service may or may not come with tax, and the taxes on each product may also vary.  In order to keep up with these different products and services, make sure you categorize them by tax and non-taxable items. 

The first step is to believe that the amount of tax you should pay is the equivalent of taxes you obtain from your buyers. You need to separate the revenue from your taxes, if you don’t you will have issues when it comes to paying your taxes.

Do not add taxes to the price of your products because then you will be unsure of your profit, it is recommended that you create an account to manage your taxes instead. 

Attain longevity in Your Business

You need to be efficient with your accounts if you want future growth and success for your business.  If it is too expensive to have an accounts department then contract an outside person to do the job.  If you have made over a certain amount in profit then you will need more people managing the books instead of one.  As your business grows so does your team and you will need to act accordingly in order to sustain your business. 

The heart of your business is not accounting and it can be hard to concentrate and put all your energy and time into something so laborious, however, as long as you understand basic accounting and have additional persons helping to manage the books then you can definitely achieve success in your e-commerce business. 

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