4 Tips to Help You Get To Grips with Ecommerce Accounting
Are you running a business that relies heavily on e-commerce? If so, you will need to get a grip on e-commerce accounting if you want any hopes of succeeding. Remember that accounting for a regular business versus e-commerce is not quite the same. While the basics might be shared, there are many things that differ an e-commerce business from a traditional one.
That said, here's what you need to do to ensure your e-commerce accounting needs are well met:
1. Pick the Right Business Entity
Your e-commerce business might want to go by the legal status of a sole proprietorship, partnership, corporation, or S-corp. Of course, the most straightforward selection is that of a sole proprietorship. This classification is the least risky and usually the simplest to file taxes. However, not everyone wants to take that route.
Worry not, the other three are all viable options. However, each has its own pros and cons. For instance, a corporation is a more formal solution. It offers speed and solid paper trails, but it can be more difficult to set up. On the other hand, a partnership is less formal, but it's more challenging to manage.
Whatever you choose, you should know that the IRS won't allow you to switch from one tax status to another during the course of a tax year. This means that if you choose the sole proprietorship route, you will need to officially start a corporation if you don't already have one.
2. Settle on an eCommerce Accounting Method
One thing that you shouldn't neglect is the method you'll use for accounting. You will have to decide whether to go for cash or accrual accounting. The question boils down to whether you want to record income as soon as it's owed or as soon as you have it in hand.
Accrual accounting is more preferred. It's the easier way through which to keep records because it gives you an accurate idea of how much income your business will be making. However, it requires more work, which is why you might want to consider using simpler cash accounting.
3. Spend the Time to Budget
As you might imagine, your e-commerce business is going to have a lot more expenses than a more traditional one. Unless you want to be eating ramen noodles every night, you will need to create a budget.
That way, you can make sure to stay on top of expenses, including the cost of materials, accounting, and shipping. You'll also want to figure out how much you need to make to reach your desired level of profit.
4. Find Ways to Cut Costs
You won't be able to get by without having a budget. However, this doesn't mean that you will have to spend as much as you need to. Your business may be able to cut costs by taking advantage of its ability to outsource or carry out any tasks that are not its specialty.
You can set up a virtual assistant or a systems manager who will take care of tasks such as accounting and coding. In addition, you should try to find ways to save in other areas. Perhaps you can ditch your office and work from home or get a cheaper location to use.
Keep in mind that it's not just what you spend that counts. You also have to watch where you're getting your money from. A lot of customers are going to be ordering via secure connections; therefore, you will want to ensure that you are getting higher profits for your business.
The goal is to make sure that you're not just running a business, but a profitable one, as well. With all of the various aspects that go into e-commerce accounting, it can seem a bit daunting. However, with enough effort and determination, you will be able to do it. If you need help accounting for your e-commerce business, reach out to the professionals to assist!
New Wave Accounting is an accounting firm offering end-to-end accounting and bookkeeping services to small businesses. If you require an e-commerce account on the Gold Coast, work with us today!