E-Commerce Bookkeeping Preparations: 4 Important Questions to Ask
If you are starting an e-commerce business, bookkeeping is an essential part to prepare for. Just because you have moved towards a more technologically inclined business platform does not mean that your bookkeeping would be immensely different from the traditional auditing. If you are clueless on how to start, this article can serve as your guide.
As an e-commerce entrepreneur, you know how important planning is. You should implement the same when it comes to your business bookkeeping. To give you an idea of what you should prepare for, here are the guide questions you should answer:
1. What kind of payment setup would you use?
One of the first things to determine for an e-commerce business is the payment processor and merchant account provider you will use.
First, you need to find out if your e-commerce platform already has their payment processing method. If there’s none, you need to get a third-party provider. Working with a third-party provider has its pros and cons. It is relatively cheaper compared to having a setup on your own, but it will require you to have enough technical knowledge about the programme in case error happens.
Next, you need to look into the merchant fees and their requirements. Merchant accounts refer to the type of bank account that will permit your store to accept payments. You also need to study how they calculate the merchant fees and how they are applied. Some merchants do not remit their merchant fee if an item is returned. You should know all these details beforehand to do well-documented bookkeeping.
Last, you need to decide on what currencies your business will accept. Will you accept payment coming from outside Australia, or will your business be limited to local services? All this information will matter when you do your bookkeeping.
2. What is the software you will use?
Nowadays, using software to keep track of everything is the norm. It is a more convenient way to systematise and manage your business seamlessly. For an online store, you will need two software: one for your accounting needs and one for your product inventory tracking.
Accounting Software - There is various accounting software in the market you can choose from. Each has different features. Choose the best programme that would meet all your needs. For example, if you have an online store but you also have a physical store, a retail accounting software would work best for you.
Inventory Software - For an e-commerce business, the accuracy of inventory is crucial. Find a software that can track your inventory in real-time, and if you have online stores in various platforms, it should be able to integrate all inventory of those platforms into one.
3. What inventory costing method will you use?
Knowing your inventory costing versus your gross profit can tell you how much your business grows. There are different methods to use for this:
The First In, First Out (FIFO) method - This method uses the price of the oldest item on hand as a reference for computing the costing.
The Last In, First Out (LIFO) method - Opposite to the FIFO method, the LIFO method treats the last items bought as the first items that are sold, and it serves as the reference cost for computing.
The weighted average method - In this method, the total cost is divided by the number of all units on hand.
The retail inventory method - This method measures the cost of the inventory relative to the price of the goods; there is a clear line between the current period and the next period.
The best method to use depends on what type of product you sell or what kind of business you have, but any method you choose will affect the way and the accuracy of how you calculate your finances.
4. How will you track your inventory?
The more accurate your product inventory, the better your financial accuracy. That is why after determining the type of inventory costing you should have for your business, you need to decide how you would track your product inventory:
Periodic inventory tracking means physically tracking all products you have on a specific period—monthly, quarterly, or annually. The more frequent, the more accurate your inventory is.
Perpetual inventory tracking is an automated process. It updates your inventory every time a package is sent out or received through scanning the product.
Answering these four questions can help you jumpstart your bookkeeping process for your e-commerce business. Working with someone with a basic understanding of how online businesses works and someone knowledgable about bookkeeping will help you navigate your way smoothly.
If you are looking for the best accountants in Gold Coast to help you with your e-commerce bookkeeping needs, we’re here to help. We’re here to assist you on how to begin and help you grow and scale your business later. Contact us today!