E-commerce requires hard work, especially if you’re starting a new business endeavor. It’s essential to understand the importance of recording and indexing financial data to continue making sensible business decisions. Being able to analyze your transaction data to determine which products and services are most profitable for your business can be invaluable, allowing you to design a strategy to ensure enhanced growth and profitability.
Here’s everything you need to know about e-commerce accounting and why you should consider it.
What Does E-Commerce Accounting Do?
E-commerce accounting stores, labels, and, most importantly, analyze financial data from transactions and business-related expenses. The merit of this practice is readily understood.
Businesses that track their expenses, monitor their sales, and maintain financial records will better understand the resources available to the company, how a financial decision in the past has affected the business, and how economic decisions can beneficially affect the business in the future.
Put simply, e-commerce accounting makes recordkeeping much more manageable and allows businesses to make smarter decisions based on prior financial data. The “e” in e-commerce stands for electronic, making e-commerce specifically a subset of business accounting that deals with online transactions and data.
E-commerce accounting logs the following information:
Sales Information –
Sales orders, including client data and items purchased, help record business transactions that inform future business decisions.
Cost of Goods Sold –
This term refers to all the expenses involved in the manufacturing and selling of a product, including shipping, storage, production, and other costs connected to product sales.
Outstanding Invoices –
It’s vital to log sales that have not been finalized or remain unpaid. Organization in accounting can help businesses recognize when they need to follow up with customers or partnering businesses.
Of course, it’s also important for e-commerce businesses to keep track of what they owe to the government.
E-commerce accounting can be both simple and complex: it includes basic accounting such as payroll, invoicing, and balancing spreadsheets, but it is complicated because it also involves long-term business planning and growth.
Why Is E-Commerce Accounting Important?
E-commerce accounting does the nitty gritty groundwork of managing pay, recording sales, and lodging expenses. Even these mechanical processes take a significant amount of time and effort, giving you less time to focus on the long-term growth of your business.
As such, it might be worth hiring an expert e-commerce accountant or utilizing e-commerce accounting software to manage this laborious and time-consuming process.
E-commerce accounting can also help you see the bigger picture. Whether it’s reducing the production cost of your product, determining profitability on different products, or just setting up a robust tax plan for the year, the more technical side of e-commerce gears toward the business’s longevity. Here are some of the more specific aspects of e-commerce accounting:
- Growth management
Bookkeeping is one of the most fundamental yet essential aspects of any business. That’s true of both brick-and-mortar and online businesses.
Tracking income, expenses, inventory, balances, and other relevant data is paramount to monitoring the business’s growth and preparing for year-end tax filing.
Scaling a business is always thrilling, but there are a lot of—let’s be frank—boring numbers that you need to consider to make informed business decisions. That relevant data comes from e-commerce accounting. Most notably, e-commerce accounting can log:
- Your most profitable products
- How profit has changed over time
- The most significant liability or expense in your business
This data is essential to identifying market trends and paving the way for new business growth.
Tax management is a real headache for business owners, and making even the slightest mistake on tax returns can lead to severe consequences.
E-commerce accounting emphasizes tax management to a significant degree, calculating estimated taxes, filing, and issuing 1099s to applicable contractors. Companies log bookkeeping data year-round to estimate annual taxes, usually quarterly, so they can accurately file their taxes.
What E-Commerce Options Are Available?
Most small businesses need a little help when it comes to accounting. Some available options include:
- Traditional accounting
- Online accounting
- Bookkeeping software
Nowadays, even many traditional accountants incorporate or allow compatibility with e-commerce software, although some businesses choose e-commerce platforms as their sole management resource.
Online bookkeepers serve a straightforward role for small businesses: reducing human error. A professional can accurately operate e-commerce accounting software, inputting transactions and performing regular checks for accuracy.
Of course, some business owners take on the responsibility of accounting for themselves, relying on the intuitive design of e-commerce accounting software to help them accurately understand the financial status of their business.
Having all financial data, personalized trends, and broad-scope perspectives of business growth at your fingertips makes e-commerce software highly desirable to many small businesses. Accounting tools online present in three different formats:
Cloud Accounting –
This software uses the cloud to store financial data, making it readily available whenever needed. Of course, cloud software comes with its own risk since hackers may target them to steal sensitive financial data. Be sure you trust the cloud service you’re considering before storing your sensitive data.
Cloud and Desktop Accounting –
This blended approach stores the majority of data in the cloud while the remainder remains on the desktop. Doing so allows quick access to most financial data, with some reserved locally for security.
Desktop Accounting –
Desktop accounting is the least flexible of these software options. Everything remains tightly locked down on the desktop, making it the most secure way to keep your financial data.
The Bottom Line
Everyone needs to incorporate accounting into their business plan, and that’s no less true for e-commerce businesses. Reliable, trustworthy information-gathering throughout the year helps log profitability, actualize growth opportunities, and file taxes accurately.
As your business expands, you can expect your spreadsheets to look more complicated. During this growth phase, it’s important to consider your approach to e-commerce accounting, whether through a trusted third party, an e-commerce software, or a mixture of both.
Tap into the expertise and knowledge of other business owners and any professional accounting resources you may have to strengthen your business in the long term.